The International Monetary Fund (IMF) has increased its latest forecast of how much the global economy will grow this year to 3%.

The global lender explained that the 0.2% improvement from April’s forecast was partly driven by increased post-pandemic travel.

Meanwhile, it stated that a strong jobs market and services sector are also included in the predicted uptick. But soaring consumer prices and higher interest rates remained risks in developed nations, the IMF said.

China’s delicate economic recovery was also amongst the biggest risks on the horizon. The IMF’s chief economist Pierre-Olivier Gourinchas noted that the recovery from the pandemic is still having an impact. He said in the first three months of 2023, there was a “strong resilience” in the demand for services, going out, and travel and tourism.

“Those countries [that] are tourist destinations have done relatively well. Those countries [that] are more manufacturing hubs have done maybe a little bit less strongly,” Mr Gourinchas added.

The latest numbers from the International Air Transport Association showed that in May, global air traffic continued its recovery, reaching 96.1% of pre-covid levels.

However, the IMF stated that there is limited room for further recovery in tourism dependent economies in southern Europe, some of which have been badly damaged by wildfires.

So-Called Emerging Economies

So-called emerging economies such as China and India are set to see the fastest growth this year as advanced economies including Europe and the United States grow at a slower pace.

The United Kingdom has had one of the biggest upgrades in growth since the last forecasts in April, with the IMF reconfirming May’s expectation of growth of 0.4%, rather than a decline of 0.3%. The IMF said this reflected falling “stronger-than-expected consumption and investment from the confidence effects of falling energy prices”, and “lower post-Brexit uncertainty”.

However, it leaves UK’s growth as the second slowest in the G7 group of major economies with only Germany faring worse, with a 0.3% contraction expected. The Eurozone’s biggest economy is already in recession because higher prices have led consumers to cut back on spending.

Mr Gourinchas encouraged central banks to do what they could to continue bringing down soaring consumer prices, known as inflation. The US Federal Reserve, Bank of England and European Central Bank are all still some way off hitting their 2% inflation targets.

Banks have been raising interest rates to make borrowing more expensive, and to cool down the economy. It has led to interest rates being at their highest since before the 2008 global financial crisis. The US central bank and the European Central Bank are both widely expected to increase the cost of borrowing again this week.

There is continued uncertainty as a result of the ongoing debt problems in China’s property market as the country’s nervous recovery from the pandemic continues. The fate of China, the war in Ukraine, inflation and the higher cost of borrowing money are some of the biggest challenges facing the global economy, the IMF cautions.

The IMF noted that although the outlook for the global economy is looking more positive, it remains below the 3.8% average seen in pre-pandemic 2000 and 2019.