By Lefteris Papadimas

ATHENS (Reuters) - A decade ago, Greece was in the throes of a devastating debt crisis marked by years of austerity, hardship and unrest. Now, officials and investors say 2024 could be the year its rebound is finally complete.

The Greek economy is forecast to grow nearly 3% this year, approaching its pre-crisis size of 2009 and far outpacing the euro zone average of 0.8%.

Borrowing costs have plummeted to below those of Italy, and banks bailed out during the crisis are set to be fully privatised for the first time in decades - a move some of the country's largest investors see as a final sign of normality.

"With (the state's participation) out of the way, that's a landmark," said Wim-Hein Pals of asset manager Robeco, which recently bought shares in Greek banks.

"The Greek economy is in good shape to benefit from further growth going forward."

The turnaround in Greece, whose debt crisis threatened to cause the demise of the whole euro zone, is stark - on paper at least. Now the country faces a novel problem: being held back by stagnation in the same euro zone giants that once imposed strict reforms on its economy.

After years shut off from international markets, Greece returned to investment grade credit rating in 2023. When the state's bailout fund last month sold its stake in Piraeus Bank, one of the country's largest, the sale was oversubscribed eight times.

Challenges remain, however. Falling birthrates and labour shortages threaten the long-term outlook, and the spread of climate-related disasters like wildfires and floods have strained government finances.

Many ordinary Greeks reeling from the crisis say they see little difference as economists say the wider benefits of the rebound will take time. To ensure long-term growth, the country needs to diversify beyond the typical economic drivers of tourism, real estate and services.

More than half of foreign direct investment into Greece, which totalled about 7.5 billion euros ($7.98 billion) in 2022, comes from northern European countries like France and Germany that are struggling with weak growth. Greek exports, such as agricultural goods, fuel and pharmaceutical products - two thirds of which head to the EU - fell almost 9% last year. Economic growth slowed to 2% in 2023, partly a result of its lagging neighbours.

"The lower expectations for growth in Europe affect Greece in two main ways. Through pressure on exports... and through the higher cost of money," said Nikos Vettas, head of economic think tank IOBE.

FINANCES REVIVE

Decades of rampant tax evasion and overspending caught up with Greece in 2009, when it went into recession and the government revealed a giant hole in its finances that sent shockwaves across global markets.

By 2015, it had signed three bailouts with the euro zone and the International Monetary Fund worth 280 billion euros. In return it agreed to austerity measures that slashed public sector wages and pensions, and triggered years of violent protests.

Since Greece emerged from the bailout in 2018 it has revived its banking system and has relied solely on debt markets for its borrowing needs. In 2022, it paid off the IMF two years ahead of schedule.

Calm is largely restored. In Athens' central Syntagma Square, where 10 years ago protesters would hurl petrol bombs at riot police in protest at austerity measures, today buskers entertain tourists who sit in the shade of its sour orange trees.

Visits to the Acropolis, Greece's best known ancient site, hit 3.8 million in 2023, nearly four times the number seen at the height of the crisis.

INEQUALITY REMAINS

For many Greeks though, economic recovery has not translated into improved living standards.

Unemployment remains above 10%, the second highest in the EU after Spain, and GDP per capita in purchasing power is among the lowest in the bloc, Eurostat data show. The average monthly salary of 1,175 euros is 20% lower than 15 years ago, according to labour ministry figures.

Greece needs to develop sectors where investments are more long term, said Vettas from IOBE, "like infrastructure projects and manufacturing."

Unions held a general strike on Wednesday in which trains, buses, ships and taxis were halted and hundreds took to the streets calling for higher wages. Some people haven't recovered from losing everything when the economy tanked.

Periklis Fryganas took out a bank loan in 2009 to expand his motorcycle repair shop in Athens, only for the crisis to reduce his turnover by 90% over the next six years. He closed the shop in 2020 and recently lost an apartment he shared with his unemployed wife and three sons after using it as collateral for the loan.

"The crisis broke a lot of people and I was one of them," Fryganas, 61, said. "Things are getting better only for the 'rich ones', all the others are lοsing."

($1 = 0.9404 euros)

BEIJING (Reuters) - China's central bank cautioned on Thursday against a "one-sided" pursuit of credit expansion after data showed a slowdown in bank lending, vowing to prioritise the quality of credit over size and move to revitalise existing loans.

New bank lending in China rose less than expected in March from the previous month, while broad credit growth hit a record low, boosting the case for the central bank to roll out more stimulus steps to help achieve an ambitious growth target.

The central bank will channel more funds into technology innovation, green manufacturing and small firms, the Communist party committee of the People's Bank of China (PBOC) said in an article in the official People's Daily.

"With the transition of the economy from high-speed growth to high-quality development, ... it is even more necessary to change the traditional mindset of one-sided pursuit of scale and establish the concept of prioritising quality and efficiency," the PBOC said.

"Credit allocation should ultimately be in line with the needs of high-quality development of the real economy. The key is to grasp the level well, rather than the more, the better."

The central bank will guide financial institutions to maintain balanced credit allocation and boost stability and sustainability of loan growth, it said.

The world's second-biggest economy grew faster than expected in the first quarter, but several March indicators, such as property investment, retail sales and industrial output showed that domestic demand remains frail, weighing down momentum.

The central bank said 2024 growth of money supply and total social financing - a broad measure of credit and liquidity in the economy - would match expected goals for economic growth and inflation.

"Revitalising existing credit is of great significance in improving the quality and efficiency of financial services to the real economy," it added.

The central bank will take steps to free up financial resources inefficiently taken up by some firms and sectors, it said, adding that China's outstanding yuan loans approach 250 trillion yuan ($34.55 trillion).

($1=7.2357 Chinese yuan renminbi)

SYDNEY (Reuters) - Australian employment fell in March after an enormous gain the month before while the jobless rate resumed its uptrend, a sign that the hot labour market was still on track to loosen from here.

Figures from the Australian Bureau of Statistics on Thursday showed net employment dropped 6,600 in March from February, when it rose a revised 117,600. Market forecasts had been for a small gain of 10,000 after a blockbuster February.

Full-time employment rose 27,900 in March. The jobless rate climbed slightly to 3.8% from 3.7% the previous month, although that was under a forecast of 3.9%.

By David Lawder and Andrea Shalal

WASHINGTON (Reuters) -Finance leaders from the Group of Seven industrial democracies on Wednesday condemned Iran's attack on Israel and pledged to continue work on "all possible avenues" to harness frozen Russian sovereign assets to aid Ukraine.

In a joint statement issued after a meeting, the G7 finance ministers and central bank governors said they would "ensure close coordination of any future measure to diminish Iran's ability to acquire, produce, or transfer weapons to support destabilizing regional activities."

The ministers met on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington and said that they view risks in the global economy as "more balanced" amid recent resilience to multiple shocks, with inflation receding.

"Central Banks remain strongly committed to achieving price stability and will continue to calibrate their policies in a data-dependent manner. Price and financial stability are a pre-requisite for sustainable and balanced growth," the G7 officials said.

But the group said there were significant geopolitical risks to the outlook, primarily from Russia's war in Ukraine and conflict in the Middle East, which "could affect trade, supply chains and commodity prices."

The G7 finance officials said they were strongly committed to help Ukraine meet urgent short-term financing needs as it struggles against Russia's invasion, including harnessing extraordinary revenues stemming from frozen Russian assets.

"We reaffirm our determination to ensure that Russia pays for the damage it has caused to Ukraine. Russia’s sovereign assets in our jurisdictions will remain immobilized until then, consistent with our respective legal systems," the G7 officials said.

The statement did not include a specific plan for the assets, but said they would "continue working on all possible avenues by which immobilized Russian sovereign assets could be made use of to support Ukraine" with a view to presenting options to G7 leaders at a June summit in Italy.

'WORK IN PROGRESS'

Earlier on Wednesday, Deputy U.S. Treasury Secretary Wally Adeyemo said the G7 discussions on frozen Russian sovereign assets, estimated at about $300 billion, were still a "work in progress."

Adeyemo told an event hosted by the Semafor news outlet that finance ministers were doing technical work to come up with options that still include building a strong legal foundation for outright seizure of the assets.

"We're talking through a number of different options. One of them is seizure, but another is collateralizing, or even using the windfall profits or the interest from these assets to fund a loan," Adeyemo said.

Because the bulk of the assets are being held in Europe, it was important that the U.S. work closely with European allies on the issue, Adeyemo said.

French Finance Minister Bruno Le Maire said on Wednesday that the G7 needed to be in a position to harness the interest earned on the assets.

"These revenues are estimated between 3 billion to 5 billion euros per year, depending on the level of the interest rates," Le Maire said. "So our proposal is to better understand and better define how these 3 to 5 billion euros could be used over the next month to help Ukraine and to help the Ukrainian government. So let's focus on that question."

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Foreign holdings of U.S. Treasuries surged to a record in February, its fifth straight monthly rise, Treasury Department data released on Wednesday showed.

Holdings totaled $7.965 trillion, up from a revised $7.945 trillion in January. Treasuries owned by foreigners rose 8.7% from a year earlier.

Holdings of Treasuries grew the most in Belgium, by $27 billion, to hit $320 billion. Japan, the largest non-U.S. holder of Treasuries, increased its U.S. government debt to $1.167 trillion, the largest since August 2022 when the country's holdings were at $1.196 trillion.

Investors have been alert to the threat of Japanese intervention in the currency market to boost the yen, which plunged to a 34-year low of 154.79 per dollar on Tuesday.

The Bank of Japan intervened three times in 2022, selling the dollar to buy yen, first in September and again in October as the yen slid toward a 32-year low of 152 to the dollar.

In September and October 2022, Japan's Treasury holdings declined $131.6 billion from $1.196 trillion in August.

China's pile of Treasuries also fell in February to $775 billion, data showed. The monthly decline of $22.7 billion was the second biggest among the 20 major countries on the Treasury's list.

Holdings of Treasuries by China, the world's second largest economy, have been declining, reaching $763.5 billion in February, the lowest since March 2009.

Britain listed its Treasury holdings at $700.8 billion, up about $9 billion from January.

The benchmark 10-year Treasury yield started February at 3.863% and ended the month at 4.252%, up nearly 39 basis points. Yields rose as a slew of solid economic data was released that month, reflecting expectations that the Federal Reserve will delay cutting interest rates.

Major U.S. asset classes had inflows during the month, the data showed.

On a transaction basis, U.S. Treasuries posted inflows of $88.8 billion, up from $46.3 billion in January.

Foreign buying of U.S. corporates and agencies persisted in February, with inflows of $52.7 billion and $3.7 billion, respectively.

U.S. equities showed a minor inflow of $400 million, compared with outflows of $15.4 billion in January.

Overall, net foreign acquisitions of long- and short-term securities, as well as banking flows, showed a net inflow of $51.6 billion in February, up from outflows of $30.8 billion the previous month, Treasury data showed.

LONDON (Reuters) - Global property and casualty insurers showed "alarming" underwriting losses in 2022 as natural catastrophes increased and risk models failed to keep up, a report from consultants Capgemini said on Wednesday.

Global insured losses from natural catastrophes have been surpassing $100 billion annually in recent years, driven higher by issues such as winter storms. Industry sources see climate change and increased building in exposed areas as contributing to the losses.

The insurers' global combined ratio, a measure of claims and expenses against premium revenue, was 103% in 2022, Capgemini said. A level above 100 indicates an underwriting loss. Property insurers have suffered three years of underwriting losses in the past four years, the report said.

Only 27% of insurance executives surveyed believe their firms have advanced predictive modelling capabilities.

"Accurate risk prediction and pricing are becoming increasingly challenging and leading to insurability concerns," Anirban Bose, Capgemini financial services strategic business unit CEO, said in the report.

The report gathered information from 18 insurance markets, including Britain, Hong Kong, India and the United States, through polling of insurance customers and interviews with insurance executives and underwriters.

By Andrea Shalal and David Lawder

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen on Tuesday warned that the U.S. intends to hit Iran with new sanctions in coming days over its unprecedented attack on Israel, and these actions could seek to reduce Iran's capacity to export oil.

"With respect to sanctions, I fully expect that we will take additional sanctions action against Iran in the coming days," Yellen said told a news conference on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington.

"We don't preview our sanctions tools. But in discussions I've had, all options to disrupt terrorist financing of Iran continue to be on the table," Yellen added.

She said that the Treasury and State Department have taken previous action to contain Iran's "destabilizing" behavior by diminishing its ability to export oil.

"Clearly, Iran is continuing to export some oil. There may be more that we could do. I don't want to preview our actual sanctions activities, but certainly that remains in focus as a possible area that we could address."

Treasury was working to enlist the aid of China, G7 partners and other major global suppliers to erode Iran's ability to continue to export oil and to get the microelectronics needed for the drones it used to attack Israel and was selling to Russia, a senior Treasury official told reporters.

The official said a jump in oil prices had been driven mainly by geopolitical uncertainty, not U.S. sanctions, and noted that past sanctions had not led to oil price increases.

"We're going to have conversations with all major suppliers around the world. That includes countries in the G7; that includes China. All of these countries have to play a role in constraining Iran's ability to get access to the goods they are using to build weapons," the official said.

In prepared remarks, Yellen said Iran's attack on Israel last weekend and its financing of militant groups in Gaza, Lebanon, Yemen and Iraq threatened stability in the Middle East and could cause economic spillovers.

The United States is using financial sanctions to isolate Iran and disrupt its ability to fund proxy groups and support Russia's war in Ukraine, Yellen said.

Treasury has targeted more than 500 individuals and entities connected to terrorism and terrorist financing by the Iranian regime and its proxies since the start of the Biden administration in January 2021, Yellen said.

That has included targeting Iran’s drone and missile programs and its financing of the Palestinian militant group Hamas, the Houthis in Yemen, Hezbollah in Lebanon, and Iraqi militia groups, she said.

"From this weekend’s attack to the Houthi attacks in the Red Sea, Iran’s actions threaten the region’s stability and could cause economic spillovers," Yellen said, without giving details.

Iran on Saturday launched more than 300 drones and missiles against Israel, its first direct attack on the country, in retaliation for a suspected Israeli air strike on its embassy compound in Damascus on April 11 that killed elite military officers.

Israel's military said that it shot down almost all the drones and missiles, and that the attack caused no deaths, but the situation has increased fears of open warfare between the longtime foes.

In Gaza, more than 33,000 Palestinians have been killed in the Israeli offensive launched against Hamas after the group attacked Israel on Oct. 7, killing 1,200 people and taking 253 hostages, according to Israeli tallies.

Yellen said Washington was continuing to use economic tools to pressure Hamas, but said Treasury was emphasizing that its sanctions should not impede life-saving aid.

She called for urgent action to end Palestinian suffering in the narrow enclave, noting that Gaza's entire population of more than 2 million people was facing acute food insecurity and that most of the population had been displaced.

"It is incumbent on all of us here at these meetings to do everything in our power to end this suffering," she said.

Yellen noted that Washington was also using sanctions to target extreme settler violence in the West Bank, while working to ensure a functioning banking system there and supporting IMF programs in Jordan and Egypt.

By Rae Wee and Stefanno Sulaiman

SINGAPORE/JAKARTA (Reuters) - Indonesia's economy was primed for monetary easing later this year, but an unwelcome plunge in its currency is complicating matters for Bank Indonesia and could force it to grudgingly raise rates as early as next week.

As Indonesian markets returned from a long Eid al-Fitr holiday this week, the rupiah sank to a four-year low against a dollar buoyed by expectations that a hot U.S. economy will force the Fed to keep rates higher for longer.

As it slid past the psychological level of 16,000 to a dollar, stacking up a 5.25% loss for the year, some market participants felt Bank Indonesia (BI) might need to do something as drastic as a rate rise to arrest the slide.

BI is the only central bank in the world whose main mandate is currency stability.

Through 2023 and so far this year, it has used a range of intervention tools to keep the rupiah reined in as the dollar soared. Until last month, it was even expected to be among the first central banks in emerging Asia to start cutting rates.

As BI prepares to review policy on April 23, the thinking is changing. A hike would be its first since October.

"I think the risk of a hike is not small. I wouldn't put it as a baseline because they did hike previously, but I would think it's not small," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

"I think definitely, the rhetoric will have to turn a bit more hawkish in order to lend support to the currency."

A rate rise would help bump up the yields that have been the rupiah's big appeal historically, as well as the cause of its frequent bouts of volatility. That's even as tame inflation and growth concerns do not call for one.

Once a popular carry-trade currency, Indonesia's high-yielding bond market has lost appeal due to currency volatility and the wafer-thin spreads it offers over dollar markets.

Spreads between 10-year U.S. Treasuries and Indonesian government bonds were as wide as 7.5 percentage points four years ago. Now they are two points.

Foreigners hold just 14% of outstanding Indonesian government securities, while back in December 2020 they owned a quarter.

MORE NEEDED

Bank Indonesia has been using a unique mix of direct rupiah buying in the spot foreign exchange and domestic non-deliverable forwards (DNDF) markets as well as purchases of government bonds to stem the rupiah's decline.

To be sure, the efforts have helped keep the rupiah from falling as much as peers such as the Korean won.

BI's intervention in the DNDF market has also tamped down expectations of rupiah depreciation, with markets expecting a mere 0.5% decline in the next six months.

Edi Susianto, BI's head of monetary department, told Reuters the central bank has been working with "relevant stakeholders" to prevent excessive rupiah volatility, for instance by staggering the demand for dollars from state-owned energy company Pertamina.

"So far the coordination with Pertamina is going very well. If the demand is for later, then it is recommended to not enter the FX market for now," said Susianto.

The central bank spent about $6 billion in the first quarter alone, which left its foreign exchange reserves at $140.4 billion at the end of March.

But BI could be close to exhausting all its options, particularly as Fed rate cut bets recede.

Daniel Tan, portfolio manager at Grasshopper Asset Management, said his fund has bought dollar-denominated bonds issued by Indonesian state firms this year, rather than risking exposure to rupiah assets.

Some investors are betting on eventual Fed rate cuts later this year giving Indonesia's rupiah some reprieve.

Jerome Tay, investment manager of Asia fixed income at abrdn, said the firm is overweight on both rupiah on a relative value basis and Indonesian government bonds, citing reasons such as tame inflation, the government's cash surplus and expectations for low volatility.

"Foreign positioning is still very light and bonds are well supported by domestic investors," he said, adding he expects foreign money to return when the Fed starts easing policy.

For now, a foot-dragging Fed continues to cast a cloud.

Bank of America's Asia and ASEAN economist Kai Wei Ang has pushed out expectations for BI's first rate cut to December from June, aligning with the Fed.

"Any BI hike in response to sharp currency depreciation pressure cannot be entirely ruled out, but it could be delivered in a manner to 'surprise' the market and justified on the basis of upside risks to inflation from imported inflation and energy."

By Francesco Guarascio

HANOI (Reuters) - Vietnam has mounted an "unprecedented" rescue of Saigon Joint Stock Commercial Bank (SCB), a lender engulfed in the nation’s biggest financial fraud, according to three bank documents and new official information provided to Reuters by a person with access to the documents.

"Without lending, SCB will collapse," according to the new information provided to Reuters. "If the lending continues, the national treasury will gradually dry up."

Reuters is not identifying the source more specifically due to the sensitivity of the matter.

The new information also described the situation as “unprecedented” for the massive volume of the cash injections, the complexity of the operation and the scale of existing and potential damage to Vietnam’s financial system.

Reuters was unable to establish whether the conclusions about the impact on state coffers were broadly shared by other officials currently involved with monitoring SCB.

Vietnam's public debt was stable last year at 37% of gross domestic product, while the budget deficit widened slightly to 4.4% of GDP. Foreign reserves were around $100 billion at the end of the year, according to the central bank. That is up from about $90 billion at the end of October, according to the independent regional watchdog ASEAN+3 Macroeconomic and Research Office.

As of the start of April, the Southeast Asian nation’s central bank had pumped $24 billion in "special loans" into SCB, according to one of the bank documents seen by Reuters, which provides daily updates since March 29 on overall injections from the central bank.

Lending has slowed slightly but averaged more than $900 million a month in the past five months, according to that document, a second document with updates from March 15 to March 20, and a third document from November with monthly updates from October 2022 to October 2023.

The central bank did not reply to requests for comment about the rescue effort. The finance ministry referred a question to the central bank. SCB initially told Reuters it would circulate the news agency's request for comment, but did not respond to subsequent emails. An SCB official declined to comment when contacted by phone.

RUN ON BANK AFTER TYCOON'S ARREST

The State Bank of Vietnam's previously unreported cash injections into SCB amount to 5.6% of the nation's annual economic output, or about one-fourth of Vietnam's foreign-exchange reserves.

The central bank placed SCB under its supervision to stem a run on the bank sparked by the October 2022 arrest of real estate tycoon Truong My Lan. Since then, SCB has been using the injections to cover cash withdrawals, according to one of the bank documents, which SCB sent to the central bank in November to account for its use of the loans.

After the central bank stepped in, SCB's deposits plunged 80% to about $6 billion by December 2023, according to the new official information from the source. SCB could run out of deposits by mid-year at the current pace, and bad loans had surged to 97.08% of SCB's credit balance as of October, it said.

    Lan, the tycoon whose October 2022 arrest sparked the bank run, was sentenced to death on Thursday after being found guilty of masterminding the fraud. She had pleaded not guilty to embezzlement and bribery for allegedly siphoning off $12.5 billion in loans from SCB to shell companies while effectively controlling SCB through proxies.

Lan, formerly a prominent figure in Vietnamese finance, will appeal the verdict of the People's Court of Ho Chi Minh City, one of her lawyers said.

Despite the official support, as of December SCB continued to face liquidity problems and at times struggled to settle payments on time when its customers transferred money to other banks, and to process payments via the country's main clearing system, according to the new information. This affected customer "psychology" and created risks to the entire banking and financial system, it said.

The central bank had provided SCB, previously one of the country's largest commercial lenders by deposits, with 592.7 trillion dong ($23.72 billion) in "special loans" as of April 2, according to a recent update produced by the bank on the matter, seen by Reuters.

That was up from 478 trillion dong at the end of October, according to the SCB document that was sent to the central bank. That indicates injections of 23 trillion dong ($910 million) a month since November.

This has slowed from the initial average of $3.7 billion a month the central bank initially injected in October and November 2022 and the monthly pace of nearly $1.2 billion from then until October 2023, the bank document shows.

BANK RESTRUCTURING SOUGHT

Vietnam's banking sector is already facing heightened risks from prolonged turmoil in the real estate sector. The fraud prosecution is part of the authorities' "blazing furnace" anti-corruption campaign, which triggered the real estate crisis, weighing on the economy and clouding the outlook for banks.

The central bank and the government have repeatedly sought help for SCB from the private sector, specifically calling on foreign investors, state media say, despite restrictions such as a 30% cap on combined foreign ownership of Vietnamese banks.

Late last year the central bank assigned private real estate company Sungroup to craft a plan to restructure SCB, according to the recent information from the source and three people familiar with the plan. Sungroup did not reply to a request for comment.

Reuters could not determine whether the Sungroup plan has been approved.

Any restructuring plan would hinge on the evaluation of real estate assets used by Lan and her companies as collateral for loans, but the legal status of those assets is often unclear, as many are still seeking permits while some violated rules on public land or permits, according to the new information.

Some of the assets include valuable properties in high-end districts in Ho Chi Minh City but most are unfinished projects.

The Lan family estimated the assets at $30 billion, a family representative told Reuters this month, while the market appraisal firm Hoang Quan, hired by the central bank for an assessment, valued them around $12 billion, according to a November public document from the police, which detailed Lan’s alleged wrongdoing.

Some of Lan's Hong Kong business partners have expressed interest in the assets, Reuters reported earlier this month. They did not respond to requests for further comment about their interest in the assets after Lan’s trial verdict.

By David Lawder

WASHINGTON (Reuters) - The global economy is set for another year of slow but steady growth, the International Monetary Fund said on Tuesday, with U.S. strength pushing world output through headwinds from lingering high inflation, weak demand in China and Europe, and spillovers from two regional wars.

The IMF forecast global real GDP growth of 3.2% for 2024 and 2025 - the same rate as in 2023. The 2024 forecast was revised upward by 0.1 percentage point from the previous World Economic Outlook's estimate in January, largely due to a significant upward revision in the U.S. outlook.

"The global economy continues to display remarkable resilience with growth holding steady and inflation declining, but many challenges still lie ahead," Pierre-Olivier Gourinchas, the IMF's chief economist, told reporters.

A potential escalation of the Middle East conflict after Iran's rocket and drone attack on Israel could have a "strong effect" on limiting growth, he said, adding that it would raise oil prices and inflation, triggering tighter monetary policy from central banks.

The U.S. Treasury is preparing to hit Iran with new sanctions in coming days that could limit its ability to export oil, U.S. Treasury Secretary Janet Yellen said on Tuesday.

The report described an "adverse scenario" in which a Middle East escalation would lead to a 15% increase in oil prices and higher shipping costs would hike global inflation by about 0.7 percentage points.

The IMF forecast that global median headline inflation will fall to 2.8% by the end of 2024 from 4% last year, and to 2.4% in 2025.

U.S., EUROPE DIVERGE

The IMF revised its forecast for 2024 U.S. growth sharply upward to 2.7% from the 2.1% projected in January, on stronger-than-expected employment and consumer spending. It expects the delayed effect of tighter monetary and fiscal policy to slow U.S. growth to 1.9% in 2025, though that also was an upward revision from the 1.7% estimate in January.

European Central Bank President Christine Lagarde has cited the stark divergence between the U.S. and Europe, which is facing slower growth and faster-falling inflation.

The latest IMF forecasts bear this out, with a downward revision to the euro zone 2024 growth forecast to 0.8% from 0.9% in January, primarily due to weak consumer sentiment in Germany and France. Britain's 2024 growth forecast was revised down by 0.1 percentage point to 0.5% amid high interest rates and stubbornly high inflation.

CHINA PROPERTY WOES

The IMF left unchanged its forecast for China's 2024 growth to fall to 4.6% from 5.2% in 2023, with a further drop to 4.1% for 2025. But it warned that the lack of a comprehensive restructuring package for the country's troubled property sector could prolong a downturn in domestic demand and worsen China's outlook.

Such a situation could also intensify deflationary pressures, leading to a surge in cheap exports of manufactured goods that could stoke trade retaliation by other countries - a scenario that Yellen warned about during a trip to China earlier this month.

Gourinchas said, however, that China's stronger-than-expected first-quarter growth may prompt an upward revision to the outlook.

The IMF recommended that China accelerate the exit of non-viable developers and promote the completion of unfinished housing projects, while supporting vulnerable households to help restore consumer demand.

But the global lender noted bright spots in some big emerging market countries, raising its growth forecast for Brazil in 2024 by half a percentage point to 2.2% and increasing the forecast for India's growth by 0.3 percentage point to 6.8%.

It noted that Group of 20 large emerging market countries are playing a bigger role in the global trading system and have the capability to shoulder more of the growth burden going forward.

But the IMF said low-income developing countries continue to struggle with post-pandemic adjustments and greater levels of economic "scarring" than middle-income emerging markets. As a group, these low-income developing countries saw their 2024 growth forecast cut to 4.7% from an estimate of 4.9% in January.

RUSSIAN RESILIENCE

In one of the biggest surprises, Russia's 2024 growth forecast was increased to 3.2% from the 2.6% projected in January. The report said the increase partly reflected continued strong oil export revenues amid higher global oil prices despite a price-cap mechanism imposed by Western countries, as well as strong government spending and investment related to war production, along with higher consumer spending in a tight labor market. The IMF also upgraded Russia's 2025 growth forecast to 1.8% from 1.1% in January.

Ukraine's growth, which is highly dependent on economic aid from the West, is forecast to slow to 3.2% in 2024 and accelerate to 6.5% in 2025.

While initial price spikes for grains, oil and other commodities have faded since Russia's 2022 invasion of Ukraine, a widening of the conflict could cause them to intensify.