The International Monetary Fund (IMF) said on Thursday that first quarter global growth slightly outpaced projections in its April forecasts, but data since then has shown a mixed picture, with “pockets of resilience” alongside signs of slowing momentum.

The IMF said in a briefing note for a G20 finance leaders meeting in India next week that manufacturing is showing weakness across G20 economies and global trade remains weak, but the demand for services is strong, particularly where tourism is recovering.

The IMF did not indicate any changes to its April 2023 global GDP growth forecast of 2.8% - down from 3.4% in 2022 - but said that risks were “mostly” tilted to the downside. These include the potential for Russia’s war in Ukraine to intensify, stubborn inflation and more financial sector stress that could disrupt markets.

But the Fund said that inflation “seems to have peaked” in 2022, and core inflation, while also easing, remains above targets in most G20 countries.

Reduced supply chain disruptions and lower goods demand means likely disinflationary pressures from goods, the IMF said.

“However, services inflation - which is now the major driver of core inflation - is expected to take longer to decline,” the IMF said.

Strong consumer demand for services, buoyed by demand, buoyed by strong labour markets and the post-pandemic shift in spending from goods to services, is likely to sustain these price pressures, the IMF said.

“On the upside, a softer-than-projected landing for output and labour markets is possible, with activity remaining resilient, inflation falling faster than anticipated and labour markets cooling through fewer vacancies rather than more unemployment,” the Fund added.

G20 policymakers should continue their fight against inflation, tightening monetary policy in many economies and maintaining real rates above neutral until “tangible signs of inflation returning to target emerge.” But the IMF said policymakers will need to be vigilant for signs of financial sector stress, especially those brought about by interest rate risk and property sector stresses, and may need to deploy financial policy tools to contain them. It called for “granular stress tests” for financial firms.

G20 countries also need to tighten fiscal policy to ensure debt sustainability, create fiscal space and to help support disinflation by reducing aggregate demand, the Fund said.

IMF Managing Director Kristalina Georgieva said in an accompanying blog post that her “overriding priority” was to complete a review of the IMF’s quota resources that would increase their overall size, “with mindfulness of how the global economy has evolved”, a signal that major emerging markets like China should see increased shareholding.

The Fund last adjusted its shareholding in 2010, and is working to complete a review by Dec. 15.

The IMF also warned G20 countries about the dangers that industrial policy can have in creating distortions in trade and investment, citing China’s industrial subsidies and those for green energy investment in the United States and the European Union.

“Such policies create the risk of fragmentation of production and of triggering retaliatory responses by trading partners,” the IMF said. “These could also hamper technological diffusion, both between major technological hubs and to developing economies.

Instead, it called for G20 countries to “develop common perspectives on the appropriate use of subsidies,” adding that this can help improve outdated World Trade organisation rules and help avoid a fragmented global economy.

Global finance chiefs will meet in India next week to discuss increasing loans to developing nations from multilateral institutions, reforming the international debt architecture and regulations on cryptocurrency, Indian officials said.

The finance ministers and central bank governors from the Group of 20 (G20) nations will also discuss a multilateral agreement on taxing conglomerates with cross-border operations, while the Russian war in Ukraine was also bound to come up, they said.

The July 17-18 meeting in Gandhinagar, the capital of the western state of Gujarat, will be the third finance chiefs’ meeting under India’s G20 presidency and will set the tone for a leaders summit in New Delhi in September.

The meeting is likely to be attended by most senior treasury officials from G20 member-nations, including US Treasury Secretary Janet Yellen, as well as the World Bank’s newly appointed President Ajay Banga and the International Monetary Fund’s Managing Director Kristalina Georgieva.

Senior treasury officials from Russia and China are also expected to attend, according to two Indian officials, who did not want to be named.

India will try to keep the focus of member nations on discussing issues of debt and other economic issues, and not push for any consensus on Ukraine war, one Indian official said, declining to be identified.

During the two-day meeting, the group is likely to discuss a “substantial” increase in annual loans to developing countries from multilateral institutions as recommended by an independent panel formed in March, said another Indian official, who also did not want to be named.