IMF chief says global economic outlook ‘less bad’ than feared

Prospects for the global economy have brightened amid signs that inflation is retreating from its four-decade high, the head of the International Monetary Fund has said.

Speaking at the closing session of the World Economic Forum in Davos, Kristalina Georgieva said growth prospects had picked up in recent months but warned against overoptimism.

My message is that it is less bad than we feared a couple of months ago but that doesn’t mean good. What has improved is that inflation seems to be leaning in the right direction – that is down.”

Georgieva’s remarks followed recent falls in annual inflation rates in the US, the eurozone and the UK. The IMF will release updated forecasts for the global economy at the end of the month and the IMF managing director hinted there would be a small upgrade to her organisation’s current forecast of 2.7% growth for 2023.

The prospects for China had brightened since the abandonment of the zero-Covid strategy, while strong labour markets had boosted consumer spending.

But Georgieva added: “Don’t go from being too pessimistic to being too optimistic.” Given the IMF’s current growth projections, it would still be a painful year for people around the world, and there was a risk stronger growth in China would boost energy prices and make the fight against inflation harder.

Larry Summers, a former US treasury secretary, said it would be a tragedy if central banks “lurched away” from their focus on achieving price stability and ended up having to fight the same battle twice.

“If inflation was allowed to surge back, that would put not just price stability and standards of living for low-income people at risk, but also pose substantial risks to cyclical stability,” Summers, now a Harvard professor, said.

Christine Lagarde, the president of the European Central Bank, said her institution would “stay the course” in the fight against inflation and cautioned Europe’s finance ministries not to make the fight harder by cutting taxes or raising spending to counter slower growth.

“We will do what’s necessary. We don’t want to be pushed to do more than necessary,” Lagarde said.