US economic growth remains strong with a disinflationary trend and “diminished” recession risk, according to International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas during the World Economic Outlook press briefing on Oct. 22.
In response to a question by Kyiv Post, Gourinchas said: “The news from the US is very good… Strong growth performance has been happening in the context of continued disinflation. There have been some bumps in the road… disinflation may not have been proceeding especially earlier in the year as was projected. But lately it’s been quite substantial,” Gourinchas said.
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Two factors stimulating continued resilience include strong productivity growth and the significant role of immigration. On the latter point, Gourinchas noted that rising unemployment in the US business market reflects an increase in foreign-born workers integrating into the labor force, although more time is needed for the labor market to absorb these workers.
“The labor market picture remains fairly robust,” the chief economist said.
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The risks of a recession in the US, if there are no more shocks, “would be somewhat diminished,” according to Gourinchas.
The decreasing rate of inflation combined with a slight increase in unemployment is also playing a role in refocusing Federal Reserve policy. It is now likely to pivot from fighting inflation to observing a cooling in the labor market and is not expected to turn into anything “negative.”
Growth is forecast to hold at 3.2 percent in 2024 and 2025. However, there is a less positive trend for low-income developing countries: downward growth scenarios are projected, especially for countries experiencing conflict.
Global economy almost winning out against inflation
The US remains on a disinflationary trajectory in line with the global economy, according to the October 2024 World Economic Outlook released by the IMF on Oct. 22.
In fact, the global economy has remained resilient throughout the disinflationary process, avoiding a global recession, the report says. However, price pressures persist in some
countries.
After peaking at 9.4 percent year-over-year in the third quarter of 2022, headline global inflation rates are now projected to reach 3.5 percent by the end of 2025, according to the IMF. Previously, global inflation spiked because of supply disruptions coupled with strong demand pressures in the wake of the COVID-19 pandemic. This was followed by sharp spikes in commodity prices caused by the war in Ukraine.
Central banks around the world reacted by raising interest rates and tightening monetary policies while supply disruptions eased. These factors helped to constrain demand while labor markets normalized and caused a decline in inflation without a major slowdown in activity. As a result, the global economy has not fallen into a worst scenario.
As the fight against inflation passes, the IMF notes future risks to consider when planning policy. Thes include: an escalation in regional conflicts; monetary policy remaining tight for too long; a possible resurgence of financial market volatility with adverse effects on sovereign debt markets; a deeper growth slowdown in China; and the continued ratcheting up of protectionist policies.
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