IMF: US on 'very narrow path' to avoid recession

IMF: US on 'very narrow path' to avoid recession

China's rebound from zero-Covid curbs has not been as strong or sustained as hoped

IMF chief economist Pierre-Olivier Gourinchas says the US is likely to avoid a recession, while Russia's economy is holding up surprisingly well, helped by oil revenues, despite sanctions. (Photo: AFP)
IMF chief economist Pierre-Olivier Gourinchas says the US is likely to avoid a recession, while Russia's economy is holding up surprisingly well, helped by oil revenues, despite sanctions. (Photo: AFP)

WASHINGTON: The US economy is on a "very narrow path" to avoiding a recession, the International Monetary Fund's chief economist says, while warning of risks to China's strong post-pandemic recovery.

“A recession is not in our baseline,” Pierre-Olivier Gourinchas told AFP during an interview at the IMF’s headquarters in Washington, ahead of the publication of its updated World Economic Outlook on Tuesday.

“We are cautiously prudent that the US economy could avoid a recession and, you know, glide towards its inflation target without having a recession in its future,” he said.

“But it’s a very, very narrow path,” he warned.

The IMF has raised its forecast for global growth in 2023 to 3.0%, up 0.2 percentage points from its previous forecast in April, citing resilient service sector activity in the first quarter of the year.

The IMF still expects much of the growth this year and next to come from emerging and developing economies, with countries like the United States, Germany and Japan due to grow at a much slower pace than China and India.

But the IMF report also noted there are growing risks to China’s economy following its post-pandemic reopening, especially in its troubled real estate sector.

‘Slack’ in Chinese economy

The IMF continues to predict that China’s economy will grow by 5.2% this year, up sharply from last year.

But there are now signs that China’s rapid economic rebound from the Covid-19 pandemic could be “weakening faster than maybe was anticipated,” Gourinchas told AFP, while noting “some concerns about the strength of the Chinese economy going forward.”

“Maybe there’s still a certain amount of slack in the Chinese economy that is not going away and that is weighing on prices,” he said.

This slack has had a positive impact on the global inflation outlook: The IMF now forecasts consumer price increases will slow from 8.7% in 2022 to 6.8% this year, due largely to the decline in Chinese inflation.

But while it may be good news for the global economy, it could pose challenges for Chinese policymakers, Gourinchas told AFP.

“It might require some stronger policies by the Chinese authorities both in terms of monetary policy — maybe a little bit more supportive easing monetary policy — and also in terms of fiscal policy,” he said.

Russia still weathering sanctions

Russia’s economy is expected to grow significantly faster this year than the IMF forecast back in April, due largely to stronger-than-expected domestic demand, and continued government spending.

The IMF now sees Russian growth this year of 1.5%, up by 0.8 percentage points since April.

“There is a strong component coming from fiscal spending in the context of the Russian invasion of Ukraine,” Gourinchas said.

“There is a strong defence and military effort, and that is providing some stimulus to the domestic economy,” he added.

The IMF now expects the Russian government’s budget deficit will grow to 6.1% this year, up from 1.4% last year, said a spokesperson for the fund.

Export revenues have also remained resilient despite a series of US-backed sanctions in response to the invasion of Ukraine, and a G7 price cap on Russian oil.

“So far, export revenues coming from especially crude oil have remained fairly strong,” he said.

“There is some softening on refined products, this is a little bit harder, but on crude oil, they certainly the oil revenues have been have been quite sustainable,” he added.

Over the medium term, the IMF still expects the Russian economy to slow significantly compared with its projections before the war in Ukraine began.

“Our projections for medium term growth for Russia are below one percent,” he told AFP, adding that the Russian government’s increased fiscal spending have “dimmed” the country’s long-term growth prospects.

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