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lite.cnn.com - on gopher - inofficial
ARTICLE VIEW:
/
IMF raises growth forecast for ‘overheated’ US economy and urges
caution on rate cuts
By Hanna Ziady, CNN
Updated:
11:34 AM EDT, Tue April 16, 2024
Source: CNN
The US economy’s will be a major driver of global growth this year
but could make America’s inflation problem harder to solve, according
to the International Monetary Fund.
The IMF upgraded Tuesday its forecast for US economic growth to 2.7%
this year — 0.6 percentage points higher than it predicted as
recently as .
The move highlights how the United States is , notably the European
economy, which has struggled to regain momentum after the pandemic,
with high interest rates and the lingering effects of earlier rises in
energy costs weighing on activity.
The Washington-based IMF expects the 20 countries that use the euro to
grow just 0.8% this year, a downgrade of 0.1 percentage points from
its January forecast.
The global economy, meanwhile, is seen expanding by 3.2%, 0.1
percentage points more than predicted in January. China’s economy,
the second-largest in the world, is forecast to grow 4.6%, while India
is expected to notch growth of 6.8%.
“The strong recent performance of the United States reflects robust
productivity and employment growth, but also strong demand in an
economy that remains overheated,” IMF chief economist Pierre-Olivier
Gourinchas wrote in a blog post accompanying the agency’s World
Economic Outlook. “This calls for a cautious and gradual approach to
(monetary) easing by the Federal Reserve.”
“Astonishingly, the US economy has already surged past its
pre-pandemic (growth) trend,” Gourinchas added in the foreword to the
report.
Annual US inflation has ticked up in recent months after falling
considerably from a peak of 9.1% hit in June 2022. Consumer prices
rose by a stronger-than-expected 3.5% in March, prompting traders to
postpone expectations of the first interest rate cut by the Fed by
several months.
An economy can overheat when rapid economic growth — often triggered
by a sudden increase in household and government spending, — causes
inflation to rise.
What’s more — although it’s not their central forecast —
strategists at UBS now see “real risk” that the Fed won’t cut
borrowing costs and rather will resume raising rates by early next
year, according to a recent note. Some Fed officials have recently of
keeping rates on hold for the remainder of this year.
Also posing upside risks to inflation are high government spending and
debt levels in the United States. “The fiscal stance… is of
particular concern,” Gourinchas wrote. The IMF said in its report
that the country’s fiscal approach raises short-term risks to the
process of slowing inflation, “as well as longer-term fiscal and
financial stability risks for the global economy since it risks pushing
up global funding costs.”
In contrast to the United States, “there is little evidence of
overheating” in the euro area, according to Gourinchas.
The European Central Bank will need to “carefully calibrate the pivot
toward monetary easing” to avoid inflation — currently at 2.4% —
falling below its 2% target, he added.
Inflation not beaten yet
The IMF expects inflation to average 5.9% around the world this year,
down from an average of 6.8% in 2023 but 0.1 percentage points above
its January forecast.
“Worryingly, progress toward inflation targets has somewhat stalled
since the beginning of the year,” Gourinchas wrote.
Inflation has been dampened by lower energy costs and slower rises in
goods prices as supply chain frictions have eased and Chinese export
prices have fallen. But “stubbornly high” inflation in the cost of
services and a , in part due to escalating tensions in the Middle East,
could push overall prices higher again, Gourinchas said.
“Further trade restrictions on Chinese exports could also push up
goods inflation,” he added.
Officials in and the have voiced concerns about potential “dumping”
by China — that is, the export of goods at artificially low prices.
That raises the prospect of tariffs on certain Chinese products, which
could lift broader inflation.
China, the world’s biggest manufacturer, could also become the source
of a different risk to global inflation, via stronger-than-expected
economic growth. China’s economy expanded 5.3% in the , according to
official figures published Tuesday, beating estimates of economists
polled by Reuters.
In a sign of the threat to inflation, the data, which reflected a jump
in high-tech manufacturing, gave some support to oil prices Tuesday.
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