On Tuesday, the International Monetary Fund (IMF) raised its global economic growth forecast for this year, pointing out the strong performance of the US and some emerging markets, but also warned that in the context of continued inflation and geopolitical risks, the global economic outlook remains cautious.

According to the “World Economic Outlook” report released by the IMF, global economic activity is expected to grow by 3.2% in 2023, up 0.2% from its January forecast. The forecast for 2025 remains unchanged, with the same 3.2% growth rate.

Despite the increase, the IMF warns that the global economy's high borrowing costs and withdrawal of financial support are holding back short-term growth, while the medium-term outlook remains the weakest in decades due to low productivity and global trade tensions.

IMF chief economist Pierre-Olivier Gourinchas (Pierre-Olivier Gourinchas) wrote in the report: “[The global economy] still has many challenges and requires decisive action,” and pointed out the persistent problem of inflation and growing global inequality.

The “World Economic Outlook” depicts a world where the global economy has successfully avoided the worst risk of stagflation after the pandemic, but its potential growth is limited in the next few years.

Central banks in the world's major economies are moving in the right direction in their efforts to fight inflation, but it is still too early to relax monetary policy. Furthermore, growth faces many risks, particularly from the tense geographical situation between Russia, Ukraine, and the Middle East.

French Finance Minister Bruno Le Maire (Bruno Le Maire) also warned of the costs of the conflict when briefing the media before traveling to Washington on Monday.

He said, “The real economic risk is geopolitical risk, whether it's the Red Sea incident, the risk of an escalation in the Middle East, or the continuation of the conflict in Ukraine. All of these geopolitical events have placed a huge burden on economic growth.”

Notably, the IMF issued an unusually direct criticism of US policymakers, pointing out that America's recent outstanding economic performance in developed countries is partly due to unsustainable fiscal policies.

The IMF stated in its annual World Economic Outlook:

“America's recent outstanding performance is certainly impressive, and is the main driver of global economic growth, but it also reflects strong demand factors, including a fiscal position inconsistent with long-term fiscal sustainability.”

According to the report, excessive US spending is likely to re-trigger inflation and weaken long-term fiscal and financial stability around the world by raising global financing costs.

The IMF warns: “Some aspects are bound to be adjusted.”

In recent years, the US deficit has been driven by the COVID-19 pandemic, large-scale investments in infrastructure and clean energy, and soaring interest costs. According to data from the US Congressional Budget Office, public debt is expected to reach 45.7 trillion US dollars by 2033, accounting for 114% of GDP, a significant increase from 97% at the end of 2023.

US Treasury Secretary Yellen has been trying to tone down concerns about growing debt so far. She has repeatedly stated that debt sustainability is best measured by the cost of debt services (adjusted for inflation) as a proportion of GDP. The White House forecast shows that actual net interest expenses will remain below 2% of GDP over the next ten years.

However, Yellen also acknowledged that if interest rates remain high, this forecast will become weak.

Edit/evans