IMF forecasts 0.6% economy pull for the United States

THE International Monetary Fund (IMF) is expecting economic activity in the United States to slow from 3.5 per cent in the first quarter of this year to 0.6 per cent by the end of 2023.

This latest forecast, released by the IMF on July 12, 2022, and titled, ‘The US Economy’s Inflation Challenge’, explained that though the economy survived the pandemic, supply chains were a causing renewed rise in inflation rates.

This phenomenon, the report stated, would result in an economic slowdown, even as the Federal Reserve (the Fed) continues to tighten monetary policy, while COVID economic relief programmes come to an end.

It also added that the stronger that inflation persists, the more the Fed would be required to tighten the economy.

As at today, US consumer prices have skyrocketed to 9.1 per cent, the biggest 12-month increase since 1981, and up from an 8.6 per cent jump in May.

“The IMF’s annual review of the US economy focuses on the policies needed to return inflation to the Fed’s medium-term target. Most workers’ wages have failed to keep up with inflation, eroding the purchasing power of households and causing significant hardship.

“Although increases in gasoline and food prices have been affected by global events, the prices of a broader range of items have also risen strongly, including housing and transportation,” the report read in part.

The IMF report stressed the importance for US authorities to act on inflation, which could allow price increases to become long-lasting, if unchecked.

It stated that the Fed increased its policy rates by 1.5 per cent and would likely to increase them by another 2 or 2.5 per cent in the coming months.

It added that the cost of borrowing has gone up, noting that “the average fixed rate on a 30-year mortgage has already risen from 3 percent to between 5 and 6 percent since the start of this year.”

Going further, it said, “We expect these policy actions will slow the growth in consumer spending to around zero by early next year, easing the strain on supply chains. At the same time, higher mortgage rates will reduce housing prices, which have grown strongly during the pandemic. Finally, slowing demand will increase unemployment to around 5 percent by the end of 2023, which should decrease wages.

“All in all, we expect core Personal Consumption Expenditure (PCE) inflation to fall back toward 2 percent by late 2023, and economic activity to slow from 3.5 percent in the first quarter of this year to 0.6 percent by end‑2023.”

In a related development, IMF’s chief, Kristalina Georgieva, has tasked the G20 countries to do everything in their power to reduce inflation.

Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva
Managing Director of the International Monetary Fund, Kristalina Georgieva. Credit: Twitter/@KGeorgieva

In a personal blog that Georgiova authored, she said, “Persistently high inflation could sink the recovery and further damage living standards, particularly for the vulnerable. Inflation has already reached multi-decade highs in many countries, with both headline and core inflation continuing to rise.

“And, on average, they have done so 3.8 times for emerging and developing economies, where policy rates were lifted sooner.”

Nigeria’s inflation rate stood at a single digit of 9.01 per cent when Buhari assumed office in 2015. But the figure rose to 15.68 per cent in 2016 and increased to 16.52 per cent in 2017.

The figure, however, dropped to 12.09 per cent in 2018 and slowed down to 11.40 per cent in 2019. By 2020, it rose to 12.2 per cent and closed in 2021 at 16.95 per cent, the highest in three years.

The current inflation rate as of May, 2022, according to the Nigerian Bureau of Statistics (NBS) Consumer Price Index(CPI) and Inflation Report, was 17.71 per cent.

  1. Similarly, the Central Bank of Nigeria (CBN) on May 24, 2022, raised the lending rate to 13 per cent, citing rising global inflation.

The new rate puts businesses in a dilemma in borrowing from banks to grow their businesses.

The CBN had until the Monetary Policy Committee (MPC) meeting this morning pegged the MPR at 11.5 per cent since September 2020.

Emefiele stressed that the apex bank was using different monetary policy tools to control the impact of inflation on the overall economy.

Experienced Business reporter seeking the truth and upholding justice. Covered capital markets, aviation, maritime, road and rail, as well as economy. Email tips to [email protected]. Follow on Twitter @theminentmuyiwa and on Instagram @Hollumuyiwah.

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