The International Monetary Fund on Tuesday warned that avoiding a recession in the United States will be “increasingly challenging” as it again cut its 2022 U.S. growth forecast to 2.3% from 2.9% in late June.
IMF on challenges of avoiding recession
As the United States growth forecast for 22 fells to 2.3 percent from 2.9 percent due to declining consumer spending, the IMF on Tuesday warned of the challenges of avoiding the recession. Additionally, The Fund also cut its 2023 real GDP growth forecast to 1.0 percent from 1.7 percent on Jun 24, when it met with US officials for an annual assessment of US economic policies.
The final report, released on Friday reflects the reduced revisions and weaker consumer spending.
According to a Reuters report, IMF directors believe the broad-based surge in inflation is “posting systemic risks to both the United States and the global economy. The policy priority must now be to expeditiously slow wage and price growth without precipitating a recession. This will be a tricky task.
More on the new moves
The Fund revealed that tightening the federal monetary policy will help in bringing inflation down to 1.9 percent by the fourth quarter of next year. This is a huge improvement compared to 3.6 percent inflation in the fourth quarter this year. While this will slower US growth, IMF predicts the US will be able to avoid recession. Andrew Hodge, the Western Hemisphere Department economist for the IMF revealed that following def rate hikes and less spending by the government, consumer growth will slow “to around zero by early next year”. This is going to help ease the supply strains.
“Slowing demand will increase unemployment to around 5 percent by late 2023, which should decrease wages,” added Hodge. The executive directors of IMF also asked called for the passage of President Biden’s delayed social and climate spending proposals. They believe it will help in fostering higher participation in the labor force. This in turn will help in easing inflation and help in transitioning the US to a low-carbon economy.
