© Reuters. As low as 0.8% in 2024! IMF slashes U.S. GDP growth forecast: road to avoid recession is getting narrower
Financial Associated Press June 25 (Editor Bian Chun) The International Monetary Fund (IMF) on Friday slashed its forecast for U.S. economic growth, as the Federal Reserve’s sharp interest rate hikes cooled demand. However, the agency also predicted that the U.S. economy would “barely” avoid a recession.
In its annual review of U.S. economic policy, the IMF said it now expects U.S. gross domestic product (GDP) to grow 2.9% in 2022, down from its April forecast of 3.7% growth. The IMF also downgraded its 2023 U.S. economic growth forecast to 1.7 percent from 2.3 percent, and expects U.S. growth to be as low as 0.8 percent in 2024.
In October, the IMF also forecast the U.S. economy to grow 5.2% this year, but that forecast has since been downgraded several times as the recovery slowed by a coronavirus variant and continued supply chain disruptions, while the Russian-Ukrainian conflict led to fuel and oil shortages. Food prices have risen sharply, further pushing U.S. inflation to a 40-year high.
“We realize that the road to avoiding a recession in the U.S. economy is getting narrower,” IMF Managing Director Georgieva said at a news conference. She noted that the economic outlook is highly uncertain.
She said that the economy is facing some major shocks, such as the Russian-Ukrainian conflict and the epidemic prevention blockade in some countries, and further negative shocks will inevitably make the situation more difficult.
Nigel Chuck, vice-president for the Western Hemisphere at the IMF, said a big enough shock could push the U.S. into a recession, though the recession could be short-lived and mild, with a modest rise in unemployment, similar to the 2001 U.S. recession. He also added that strong savings in the U.S. will help support demand.
Elimination of import tariffs has ‘obvious benefits’ to lowering inflation
Georgieva said price stability was critical to protecting U.S. incomes and sustaining economic growth, but there could be “some pain” for consumers to achieve.
She said her discussions with U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell “have no doubt demonstrated their commitment to lower inflation.”
By the Fed’s preferred measure of inflation, U.S. inflation is currently more than three times the Fed’s 2% target.
Georgieva said it was the Fed’s responsibility to restore low and stable inflation, and the IMF believed that the Fed’s desire to quickly raise its benchmark overnight interest rate to 3.5%-4% was “the right policy to lower inflation.” The Fed’s current policy rate is in the 1.50% to 1.75% range.
“We believe this policy path should lead to an early tightening of financial conditions, which would quickly bring inflation back to target. We also support the Fed’s decision to reduce its balance sheet,” she said.
While Congress failed to pass Biden’s climate and spending proposals “a missed opportunity,” Georgieva hinted that the IMF would support a smaller version.
“We believe that a Biden administration should continue its efforts to change tax, spending and immigration policies to help create jobs, increase supply and support the poor,” she said.
Georgieva also said the IMF sees clear benefits for the U.S. from eliminating import tariffs imposed over the past five years, including punitive tariffs on Chinese imports, as well as global tariffs on steel, aluminum, washing machines and solar panels .