IMF Lowers Growth Forecast for the U.S. Economy

The U.S. economy is expected to grow by 2.3 percent this year, weaker than previously anticipated, according to the International Monetary Fund (IMF), which highlighted that new data signals a slowdown in personal consumption.

At the end of June, the IMF estimated that the world’s largest economy would grow 2.9 percent this year.

In 2023, growth is expected to slow sharply to just 1.0 percent, they forecast, lowering the previous estimate by 0.7 percentage points.

The international lender revised its forecasts after U.S. data for the first quarter showed a decline in activity of 0.4 percent on a quarterly basis and weak personal consumption in May.  

They simultaneously warned of the challenges posed by high inflation and the central bank’s efforts to curb it through aggressive interest rate hikes.

The rise in prices across a wide range of products 'represents a systemic risk for the United States and the global economy', concluded IMF executives in a report following consultations under Article IV, published on Tuesday.

– The priority of government policy now must be to urgently and effectively curb the growth of wages and prices, but in a way that does not provoke a sharp decline in activity – they warned.

– This will be a difficult task – they concluded.

The tightened monetary policy is expected to reduce the inflation rate to 1.9 percent by the last quarter of next year, down from 6.6 percent in the last three months of this year, the IMF estimates.

This will further slow growth, but the U.S. should avoid recession, they believe. 

However, higher interest rates and reduced government spending will bring personal consumption growth 'down to about zero at the beginning of next year', which will alleviate supply chain issues, noted Andrew Hodge, an economist in the IMF’s Western Hemisphere Department, on his blog.

– The slowdown in demand will raise the unemployment rate to around five percent by the second half of next year, which should reduce wages – Hodge believes.  

The IMF suggests that Washington adopt the social and climate protection measures outlined by President Joe Biden, as they would encourage citizen engagement in the labor market, alleviate inflation, and pave the way for a transition to a low-carbon economy.

– The directors also recommended that trade restrictions and tariffs imposed over the past five years be lifted – states the IMF report.