The International Monetary Fund (IMF) suggests that the impressive performance of the United States’ economic system will be a major factor in global growth in 2024, but may complicate solving the problem of inflation in the US.
On Tuesday, April 16, the IMF released its new forecast for economic growth in the mentioned country. Experts of this organization, based in Washington, expect that the specified figure in the current year will reach 2.7%. It is worth noting that the previous version of the IMF forecast, which was published in January, provided that in 2024 the United States economy would show growth of 2.1%.
The revision of the vision of the prospects of the US economic system is a kind of evidence that this country is ahead of other advanced economies. In particular, the performance of the United States is better than that of the European Union. The EU is currently striving to restore the dynamic of the economy, which deteriorated significantly during the coronavirus pandemic. The countries of this region are faced with such a modification of reality, in which there are negative impact factors, including high-interest rates and the consequences of an early increase in energy prices, which has become a source of pressure on business activity.
IMF experts predict that in 20 countries using the euro, economic growth will be only 0.8% in 2024. It is worth noting that the previous version of the assessment of the prospects of the economy of the mentioned region, published in January, provided for an increase in the specified indicator by 0.9%.
IMF experts also predict that the global economy will show growth of 3.2% in the current year. In January, this figure was expected to be 3.1%. The IMF predicts that China’s economy will grow by 4.6% in 2024. India’s economic system, according to the expectations of the organization’s experts, will show an increase of 6.8%.
IMF Chief Economist Pierre-Olivier Gourinchas posted a message on his blog in which he stated that the high performance of the United States in recent years is a reflection of robust productivity and employment growth. The expert also noted that in US economy has observed a strong demand. Pierre-Olivier Gourinchas says that the economic system of the United States is currently overheated. According to the expert, the present circumstances indicate the need for a cautious and gradual approach to easing the monetary policy of the Federal Reserve System.
Pierre-Olivier Gourinchas said that the economic system of the United States has already surged the tendency of growth that was observed before the coronavirus pandemic.
The economy becomes overheated when growth, driven by sudden rises in household and government spending, provokes an increase in inflation. It is worth noting that this particular scenario was implemented in the US.
In recent months, the United States has recorded an increase in annual inflation. This indicator peaked in June 2022, amounting to 9.1%. In March, consumer prices in the United States rose by a stronger-than-expected 3.5%. Against this background, traders postponed expectations of the first interest rate cut for several months.
UBS strategists say that there is currently a real risk that the Fed will not lower borrowing costs and may even resume implementing a strategy to raise interest rates by early 2025. The corresponding assessment of the present state of affairs is contained in a note by experts of the mentioned financial institution. It is worth noting that an increase in interest rates in the United States is not the main forecast of UBS. Some Fed officials currently support the idea of keeping borrowing costs at the same level until the end of 2024.
Pierre-Olivier Gourinchas says that from the point of view of the potential probability of increased inflation in the United States, high government spending and the amount of debt are risk factors. According to the expert, in this case, short-term hazard is implied for the process of slowing down the growth in the cost of goods and services and long-term plausible negative circumstances for global financial stability. Pierre-Olivier Gourinchas also says that Washington’s fiscal policy is of particular concern.
Mr. Gourinshas said that, unlike the United States, there are currently few signs of an overheating economy in the eurozone. In his opinion, the European Central Bank should carefully adjust its monetary policy easing strategy to avoid inflation falling below its 2% target. Currently, the growth in the cost of goods and services in the eurozone is 2.4%.
The IMF predicts that the global average inflation rate will be fixed at 5.9% this year. It is worth noting that in 2023, the mentioned figure was 6.8%. In January, the IMF predicted that the global average inflation rate in 2024 would be fixed at 5.8%.
Pierre-Olivier Gourinchas speaks of concern that progress toward achieving inflation targets has slowed since the beginning of the current year. He notes that the increase in the cost of goods and services was restrained by a decrease in the price of energy. Also, in this case, the slowdown in the rise in goods prices was a factor of impact, as tensions in the supply chain eased and Chinese exports got cheaper. Mr. Gourinshas warns that persistently high inflation in the cost of services and rising oil prices, partly related to the escalation of tensions in the Middle East, may provoke another increase in overall prices. Separately, he noted that further trade restrictions on exports from China could become a catalyst for growing inflation.
In Europe and the United States, officials are currently expressing concern about the likelihood of dumping. In this case, the main risk factor for the implementation of such a scenario is the export of goods at artificially low prices from an Asian country. Against this background, the likelihood of tariffs on some goods supplied by China is growing. This probability also belongs to the category of risks of increased inflation.
As we have reported earlier, IMF Says About AI Impact on Labor Market.
