'Limping, not sprinting': weak prospects for global economy

In its latest assessment of the global economy, the IMF said the recovery from the COVID-19 pandemic and Russia's invasion of Ukraine was "slow and uneven" and predicted growth slow from 3 per cent this year to 2.9 per cent in 2024 - a 0.1 per cent cut from three months ago.

But the organisation's chief economist Pierre-Olivier Gourinchas said the economy's resilience had been "remarkable".

"Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled," Mr Gourinchas said.

Nonetheless, he admitted, the global economy was "limping along, not sprinting".

This is particularly the case for the world's advance economies, including Australia.

According to the IMF, growth among these countries has slowed from 2.6 per cent last year to just 1.5 per cent this year and will be even weaker at just 1.4 per cent in 2024.

China's property sector crisis is also weighing on activity and is expected to drag on developing economies. The IMF warns that growth among this group of countries will slow to just 3.1 per cent in the medium term, the weakest result in decades and undermining prospects for a catch up in living standards.

But the outlook is more hopeful on inflation.

After soaring to 8.7 per cent last year, global inflation is forecast to ease to 6.9 per cent this year and drop to 5.8 per cent in 2024.

Mr Gourinchas said that on current projections "most countries aren't likely to return inflation to target until 2025".

The prospect underline the risk that interest rates will have to remain high for a sustained period, including in Australia.

The Reserve Bank of Australia has kept the official cash rate on hold for the past four months amid evidence that price pressures are gradually easing, though inflation still grew by 5.2 per cent in August.

But even though markets and many economists think further rate hikes are unlikely, they do not expect rate cuts to begin until well into next year.

Treasurer Jim Chalmers said the IMF report showed persistent inflation was a worldwide problem.

Dr Chalmers said the current surge in petrol prices, with global oil markets reaching close to $US90 a barrel early Tuesday in the aftermath of the Hamas attack on Israel, was adding to the pressure being felt by households.

"The global situation is one of the reasons why inflation isn't moderating as fast as we'd like, but it is moderating overall over time," he said, flagging tougher times ahead.

He warned China's property sector crisis, high inflation and higher interest rates would "inevitably contribute to slower growth and weaker employment outcomes in Australia over the year ahead".

The IMF said governments and central banks had "little margin for error" in navigating the current situation.

It urged central banks to continue to focus on bringing inflation down while governments needed to repair and rebuild their finances and withdraw untargeted assistance while protecting the vulnerable.

The institution called for action to boost workforce participation and to tackle other impediments to growth.

On a positive note, Mr Gourinchas said there was "scant evidence" of damaging wage-price spirals developing despite tighter labour markets in many countries including Australia, and welcomed evidence that the gap between high and low wages here and in several other advanced economies was narrowing.

But he warned falling investment and consumer confidence in China posed "significant risks" for the global economy.