US on “very narrow path” to avoid recession, says IMF chief economist

The US economy is on a “very narrow path” to avoid a recession, says the chief economist of the International Monetary Fund (IMF)), Pierre-Olivier Gourinchas, who also warns of risks in China’s recovery.

“A recession is not at our starting point”, Gourinchas told AFP during an interview at the IMF headquarters in Washington, ahead of the release of the agency’s updated global growth projections on Tuesday.

“We are cautiously cautious about whether the US economy could avoid a recession” and “flow toward its inflation target without having a recession in the future,” he claimed. “It is a very, very narrow path”he added.

Tuesday morning, andhe IMF raised its global growth forecast for 2023 to 3%, that is, 0.2 percentage pointss more than in their previous April forecasts.

The IMF expects much of the growth this year and next to come from emerging and developing economies, because countries like United States and Japan they will grow at a much slower rate than China and India.

But the IMF report also points to growing risks for the Chinese economy in the aftermath of the pandemic, particularly in its troubled real estate sector.

– Atony –

The IMF continues to forecast that the Chinese economy will grow by 5.2% this year, a much higher figure than last year.

But now there are signs that China’s rapid economic recovery from the Covid-19 pandemic may be “weakening more rapidly than perhaps anticipated,” Gourinchas said.

“There is some concern about the strength of the Chinese economy in the future”said.

“Perhaps there will still be some inactivity in the Chinese economy that is not going to disappear and that is weighing on prices”, added.

This slackness has had a positive effect on the global inflation outlook.

The IMF now expects price increases to go from 8.7% in 2022 to 6.8% this year, partly due to declining Chinese inflation.

But while it may be good news for the global economy, it could pose challenges for Chinese politicians, Gourinchas said.

“It might require some stronger policies from the Chinese authorities,” both in terms of monetary and fiscal policy, he opined.

– Russia resists –

The Russian economy is expected to grow much more this year than the IMF forecast in April, mainly due to stronger-than-expected domestic demand and government spending.

The IMF now forecasts growth of 1.5%, that is, 0.8 percentage points more than in April for Russia.

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

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

Export revenues are also holding up despite sanctions against the country for invading Ukraine and a price cap set by the G7 countries for Russian oil.

“So far, export earnings, especially crude oil, have remained quite strong.”, he indicated.

In the medium term, the FMI forecasts that the Russian economy will slow down, compared to forecasts before the war started.

“Our medium-term growth forecasts for Russia are below 1%”he told AFP.

Source: AFP