WASHINGTON : As China relaxes its zero-COVID policies and the world exhibits unexpected resilience in the face of high inflation, elevated interest rates, and Russia's ongoing war against Ukraine, the outlook for the global economy is gradually becoming more positive.

The International Monetary Fund holds this opinion and current projects that the global economy will expand by 2.9% this year. Although it is lower than the estimated 3.4% growth in 2022, this forecast is still better than the 2.7% expansion for 2023 that the IMF predicted in October.

The aggressive interest rate increases by the Federal Reserve and other major central banks are expected to cause inflation to ease this year, according to the IMF, a lending organization with 190 member countries. These rate increases are anticipated to reduce the consumer demand that has increased prices. The IMF anticipates a global decline in consumer inflation from 8.8% last year to 6.6% in 2023 and 4.3% in 2024.

At a news conference in Singapore, IMF chief economist Pierre-Olivier Gourinchas stated that "global conditions have improved as inflation pressures started to abate." "We are only at the beginning of the road back to a full recovery with sustainable growth, stable prices, and advancement for all."

China's decision to lift anti-virus restrictions that had kept millions of people at home late last year was a significant contributor to the improvement in global growth. The recent "reopening" of China, according to the IMF, "has paved the way for a faster-than-expected recovery."

The IMF has increased its forecast for China's economy, which is the second-largest in the world after the United States, from 4.4% to 5.2% for this year. Beijing's economy grew by just 3% in 2022, the first time in more than 40 years that China's growth was slower than the global average, according to the IMF. However, activity is predicted to resume in 2023 after the virus restrictions are lifted.

According to Gourinchas, China and India should jointly account for 50% of this year's global growth, with the United States and Europe contributing 10%.

According to Gourinchas, "China's reopening is unquestionably a favourable factor that's going to lead to more activity." But this is in light of the fact that the world economy is contracting.

The United States is expected to grow by 1.4% in 2023, according to the IMF, as are the 19 nations that share the euro (0.7%). Despite experiencing energy shortages and higher prices as a result of Russia's invasion of Ukraine, the IMF said that Europe had shown "more resilience than expected." A warmer winter than anticipated helped the European economy by reducing the demand for natural gas.

Russia's economy, which was hit by sanctions after its invasion of Ukraine, has also proven to be more resilient than anticipated: The IMF projects that Russia will experience 0.3% growth this year. An improvement from a contraction of 2.2% in 2022 would be that. Additionally, it is significantly higher than the 2.3% contraction for 2023 that the IMF predicted for Russia in October.

The stark exception to the IMF's more optimistic outlook for 2023 is the United Kingdom. In contrast to the IMF's 0.3% growth forecast from October, it has predicted that its economy will contract by 0.6% in 2023. The British economy is being squeezed by higher interest rates and smaller government budgets.

In response to the IMF forecast, Chancellor of the Exchequer Jeremy Hunt said, "These figures confirm we are not immune to the pressures hitting nearly all advanced economies." The U.K. outperformed many forecasts last year, and if we stick to our plan to halve inflation, the U.K. is still predicted to grow faster than Germany and Japan over the coming years. "Short-term challenges should not obscure our long-term prospects," the report states.

The IMF noted that there are still significant risks to the global economy. These include the potential for an intensification of Russia's conflict with Ukraine, a sharp rise in COVID cases in China, and a financial crisis in debt-ridden nations brought on by high-interest rates.

Gourinchas warned that restrictions on semiconductor trade and government pressure to move industries back within their own borders and reduce reliance on foreign partners "potentially could be harmful to the global economy" when asked about the impact of U.S. efforts to restrict Chinese access to advanced processor chip technology due to security concerns.

Instead of moving toward re-shoring or "friend shoring," Gourinchas said, "diversification of supply chains is much more important in trying to improve resilience, improve growth, and improve standards of living."

The global outlook has been shrouded in uncertainty since the coronavirus pandemic struck in early 2020. Forecasters have been repeatedly confounded by events: a severe if brief recession, an expectedly strong recovery and then a surge in inflation. "Diversification of supply chains is much more important" than "friend shoring," Gourinchas says.

The World Bank, the IMF's sister organization, provided a more pessimistic assessment of the state of the world economy three weeks ago. The World Bank reduced its projection for global growth this year by almost half, to 1.7%, and issued a dire warning that the economy would "perilously close" to entering a recession.