The International Monetary Fund (IMF) on Tuesday (12th) revised down its U.S. economic growth forecast for this year and next, and revised up its unemployment rate forecast to 2025, warning that higher inflation across the board would be systemic for the U.S. and global economy risk.
In its Article IV consultation report, the IMF expects U.S. gross domestic product (GDP) to grow by 2.3% in 2022, down from last month’s forecast of 2.9%, and 2023 GDP growth forecast revised down from 1.7% to 1.0%.
In terms of unemployment, the IMF raised its forecast for this year to 3.7% from 3.2% previously, and will exceed 5% in both 2024 and 2025.
The IMF did not explain the reason for the downward revision of U.S. economic growth forecasts, but it is likely related to slower growth in consumer spending. The Commerce Department announced late last month that consumer spending fell 0.4% in May, the first decline this year.
The IMF said U.S. policy must focus on a rapid slowdown in wage and price growth without triggering a recession, but avoiding a recession has become increasingly challenging amid the Russian-Ukrainian war, the pandemic and supply chain constraints sex.
The IMF explained that U.S. inflationary pressures were fairly broad, with slowing durable goods price growth largely offset by higher prices for energy, food, housing, health care and other services.
Andrew Hodge, an economist in the IMF’s Western Hemisphere Department, expects the Fed to raise interest rates and reduce government spending to bring U.S. consumer spending growth to around 0% next year, but it will help ease supply pressures and by the end of next year, demand will ease. A slowdown would push the unemployment rate to around 5%, which in turn would depress wages.
The group also believes that the Fed’s tightening of monetary policy should help bring inflation down to 1.9% in the fourth quarter of next year from 6.6% in the fourth quarter of this year, which will drag down economic growth but avoid recession.
