United States: IMF cuts 2022 growth forecast to 2.3% but predicts country will avoid recession

As the 2022 United States growth forecasts to 2.3 per cent from 2.9 per cent in late June due to weakening consumer spending, the International Monetary Fund on Tuesday warned that avoiding a recession in the United States will be “increasingly challenging”. The Fund also cut its 2023 real GDP growth forecast to 1.0 per cent from 1.7 per cent on Jun 24, when it met with US officials for an annual assessment of US economic policies. The final report released on Friday was revised to reflect downward revisions to US first-quarter GDP and weak consumer spending data in May. But it continued to highlight the challenges of high inflation and the steep Federal Reserve interest rate hikes needed to control prices.

As reported by Reuters, IMF executive directors said in a statement that a broad-based inflation surge was “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.”

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The Fund said Fed monetary policy tightening should help bring down inflation to 1.9 per cent by the fourth quarter of 2023, compared with a forecast of 6.6 per cent for the fourth quarter of 2022. This will further slow US growth, but the IMF still predicted the United States will avoid recession. IMF Western Hemisphere Department economist Andrew Hodge said in a blog post that Fed rate hikes and less government spending will slow consumer spending growth "to around zero by early next year" easing supply strains. "Slowing demand will increase unemployment to around 5 per cent by late 2023, which should decrease wages," Hodge said.

IMF executive directors in their policy prescriptions for the US government called for the passage of US President Joe Biden's stalled social and climate spending proposals, saying these would foster increased labour force participation, which would ease inflation while helping to facilitate a transition to a low-carbon economy.

(with inputs from agencies)

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