The global economy is navigating a complex and uncertain landscape, characterized by slowing growth and persistent inflation. Despite a slight upward revision to the forecast for 2023, the overall outlook remains weak by historical standards. The ongoing efforts of central banks to combat inflation through higher interest rates continue to weigh on economic activity.

Inflationary pressures persist, with global headline inflation projected to decline from 8.7 percent in 2022 to 5.2 percent in 2024. However, core inflation is expected to decrease more gradually, indicating that underlying inflationary pressures remain significant.

While the recent resolution of the US debt ceiling standoff and the containment of banking turbulence have mitigated some immediate risks, the balance of risks to global growth remains tilted to the downside. The war in Ukraine, extreme weather events, and further monetary policy tightening could lead to higher inflation and increased financial sector volatility. Additionally, China’s economic recovery may slow due to unresolved real estate problems, potentially creating negative spillover effects for other economies.

To address these challenges, central banks must remain committed to restoring price stability while ensuring financial stability. This may require continued monetary policy tightening and strengthened financial supervision and risk monitoring. In the event of market strains, countries should be prepared to provide liquidity promptly while minimizing the risk of moral hazard. Building fiscal buffers and implementing targeted support for vulnerable populations can also help mitigate the negative impacts of economic downturns. Improving the supply side of the economy is crucial for facilitating fiscal consolidation and a smoother decline in inflation. This involves addressing supply chain disruptions, enhancing productivity, and promoting structural reforms. By taking these steps, policymakers can work towards a more sustainable and resilient global economy.