US on ‘very narrow path’ to avoid recession, IMF chief economist warns

‘We are cautiously prudent that the US economy could avoid a recession and … glide towards its inflation target. But it’s a very, very narrow path,’ he said
The latest IMF report also noted there are growing risks to China’s economy following its post-pandemic reopening, especially in its troubled real estate sector

United States

Agence France-Presse

Published: 10:52pm, 25 Jul 2023

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The United States’ 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 said during an interview at the IMF’s headquarters in Washington, ahead of the publication of its updated global growth projections 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.

On Tuesday morning, the IMF raised its forecast for global growth in 2023 to 3.0 per cent, 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.

The IMF continues to predict that China’s economy will grow by 5.2 per cent 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 said, 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.

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This slack has had a positive impact on the global inflation outlook: The IMF now forecasts consumer price increases will slow from 8.7 per cent in 2022 to 6.8 per cent 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 said.

“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.