Rising central bank interest rates to combat inflation and Russia's war in Ukraine continue to weigh on economic activity.

In addition, the Fund notes that the rapid spread of Covid-19 in China slowed growth in 2022, but the recent reopening has cleared the way for a faster-than-anticipated recovery. Global inflation is forecast to decline from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024, still higher than levels seen before the pandemic (2017-19) of around 3.5%.

The balance of risks remains tilted to the downside, but the downside risks have moderated since the publication of last october's economic outlook report.

Among the upside risks, a stronger impulse from pent-up demand in many economies or a faster fall in inflation are plausible.

Among the downside risks, severe health developments in China could dampen the recovery, Russia's war in Ukraine could intensify, and a tightening of global financing conditions could exacerbate debt overhang tensions.

Financial markets could also suddenly reprice in response to adverse inflation developments, while geopolitical fragmentation could slow economic progress.

In most economies, in the face of the cost-of-living crisis, the priority remains to achieve sustained disinflation. With tighter monetary conditions and slower growth potentially impacting financial and debt stability, macroprudential tools and debt restructuring frameworks need to be strengthened. Accelerating COVID-19 vaccination in China would protect the recovery, with positive spillovers across borders.

Translated by: A.M