The United States faces a ‘rocky recovery’ as it appears to be recovering from the financial uncertainty surrounding the financial sector, high inflation, the war in Ukraine and Covid.
This is despite earlier insurances of Biden’s “economic plan … it’s fiscally sound … we have more work to do, but we’re making a lot of progress.”
A update published today forecast 1.6% growth for the US this year, an improvement on the 1.4% expected in January, but significantly lower than last year’s 2.8%.
The report warns of the recent ‘banking turbulence’ in the United States, caused by the bankruptcy of SVB and Signature Bank in March, and of inflationary pressures.
While consumer spending and a robust labor market have boosted confidence since January, the overall picture is still “clouded” by uncertainty, the IMF said.
The United States is poised to grow 1.6% in 2023, against last year’s IMF forecast of 2.8%
Tobias Adrian, Director of the International Monetary Fund’s Department of Monetary and Capital Markets, speaks at a press briefing on the Global Financial Stability Report, at the Spring Meetings of the IMF and World Bank, at IMF Headquarters in Washington, DC, on April 11
The report notes that global economic activity has experienced a ‘sharp-than-expected’ slowdown in the face of a global cost-of-living crisis and inflationary pressures.
The cost-of-living crisis, the invasion of Ukraine and Covid-19 paint a generally bleak picture for the months to come as countries try to rebuild their economies.
Global headline inflation has been on a steady decline since mid-2022, aided by a decline in energy prices, especially in the United States and Latin America, it notes.
But many have offset inflation by raising interest rates, which the IMF says has affected housing construction around the world, as well as business investment.
The slight improvement in US performance since January is due to job availability and healthy consumer spending across the country.
This was aided by post-pandemic government support, encouraging consumers to spend as businesses reopened.
President Biden assured that his economic plan worked in a February statement, aiming to cut costs “from childcare to housing to college to health care” and provide breathing space for families, and create “good jobs” for the working and middle class.
US Treasury Secretary Janet Yellen plans to deliver an optimistic speech on Tuesday about the state of the US economy and banking system, which she says remains “sound.”
“At the G20 in February, I said the global economy was in better shape than many predicted last fall… that basic picture remains largely unchanged. Nevertheless, we remain vigilant for downside risks.’
The IMF is more cautious, warning that “much uncertainty is clouding the short- and medium-term outlook as the global economy adjusts to the shocks of 2020-2022 and the recent turmoil in the financial sector.
Concerns about the recession have increased, while worries about stubbornly high inflation persist.
International Monetary Fund Director of Research Department Pierre-Olivier Gourinchas speaks at a press conference during the World Bank/IMF Spring Meetings in Washington today
Pierre-Olivier Gourinchas, IMF Chief Economist, said: “The global economy is still recovering from the unprecedented upheavals of the past three years, and the recent banking turmoil has added to the uncertainties.
We expect global manufacturing growth to decline from 3.4% last year to 2.8% in 2023, before rising to 3% in 2024, broadly unchanged from our January projections.
Advanced economies are expected to see a particularly pronounced slowdown in growth from 2.7% in 2022 to 1.3% in 2023.
Global headline inflation is expected to fall from 8.7% in 2022 to 7% in 2023 on the back of lower commodity prices, but underlying core inflation is proving more persistent.
Importantly, this outlook assumes that the recent financial stress remains under control.”
The IMF, a lender in 190 countries, is forecasting global inflation at 7% this year, down from 8.7% in 2022 but up from its January forecast of 6.6% for 2023.