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

AFP , Tuesday 26 Jul 2022

The United States has only a slim chance of avoiding an economic downturn given the many risks it faces, the IMF said Tuesday.

Pierre-Olivier Gourinchas
Pierre-Olivier Gourinchas, economic counsellor at the IMF, says the global outlook has darkened significantly since April. AFP


"It's a very narrow path," IMF chief economist Pierre-Olivier Gourinchas said. "The current environment suggest that the likelihood that the US economy can avoid a recession is actually quite narrow."

He warned that even a "small shock" could tip the US economy into recession.

In its latest update to the World Economic Outlook, the IMF slashed the growth forecast for the United States to 2.3 percent this year, a drastic 1.4 percentage points lower than the April forecast.

It is projected to slow further next year, with growth of just 1.0 percent.

The US central bank has been raising interest rates aggressively to tamp down red-hot inflation, which is slowing economic activity.

Another increase is expected Wednesday at the conclusion of the Federal Reserve's two-day policy meeting, with more to follow in coming months.

Gourinchas said that while the US labor market is strong now, with very low 3.6 percent unemployment, the IMF expects that "as this monetary policy tightening continues, then that's going to gradually cool off also the labor market" causing joblessness to rise.

Current forecasts call for a slowing but not a downturn, but there are "signs of an economy that is slowing down," Gourinchas told reporters.

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