The IMF warns the US of the difficult path that awaits it to avoid recession

The International Monetary Fund (IMF) admitted this Friday that the United States will have a hard time avoiding recession, because there are many uncertainties that can cause the economy to go from slowdown to fall.

“We are aware that for the United States the path to avoid recession is narrow,” said the director of the Fund, Kristalina Georgiev, in the presentation of the report on article IV, which reviews the economic situation of the country.

While acknowledging that the US has recovered strongly from the pandemic, Georgieva noted that this comeback has had harmful collateral effectsstarting with inflation and rising energy prices, which, together with other problems stemming from the Russian invasion of Ukraine or the supply crisis, make the situation “inevitably more difficult”.

In any case, faced with questions from the press, Georgieva did not want to take it for granted that the US would end up falling into recession and recalled that next month they will review the country’s growth estimates.

Georgieva and the head of the Fund for the Western Hemisphere, Ilan Goldfajn, stressed the “strength” of the US economy to face adverse scenarios.

In the report, the IMF acknowledges that a slowdown in the US economy is expected for the 2022-2023 period, but admits that the risk of recession is there.

It speaks on the one hand of the problems in the supply chains, which have persisted longer than expected, and on the other of new concerns about the Russian invasion of Ukraine and the confinements in several Chinese cities due to the pandemic.

Also, remember that High inflation has become a problem with systemic risks for both the United States and the global economy.

And although it values ​​the low levels of unemployment, the Fund warns of the problems that have occurred in the recovery of the labor force -with a good part of the workers without the intention of returning to the labor market after the pandemic- and of other effects, such as the sharp rise in wages to which companies resorted to capture employment.

Reduction of prices and wages

For this reason, he emphasizes that the priority of US economic policy must be the “reduction” of prices and wages on a “gradual” basis to prevent a recession from “precipitating”. “It will be a difficult goal,” admits the IMF.

At the press conference, Georgieva pointed out that reducing inflation is the priority of both the Treasury Department and the Federal Reserve (Fed); and an objective that, as she reminded her, is above all the mission of the US central bank.

“We are confident that the Fed will be effective in reducing inflation, it will keep an eye on the data and, if conditions change, it will clearly decide which policy to apply. That is important not only for the United States, but also for the world economy,” said the IMF director.

Regarding fiscal policies, after emphasizing his support for the US administration’s economic agenda, he considered that the economic measures that are put in place should help “reshape” the economy, alleviate supply problems, encourage investment and innovation, and improve the workforce.

She regretted that many of the decisions of the US Government have not had the support of Congress, which for her is a “Lost opportunity”.

Changes in fiscal policy

Georgieva encouraged the US Administration to continue implementing changes in its fiscal policy to facilitate job creation, improve supplies and help the most disadvantaged.

Among the measures proposed by the report are raising taxes on large corporations and higher incomes and reforming the immigration system to guarantee the entry of workers when the economy requires it.

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also suggests aid to pay for childcare and allow parents to return to work, approve paid leave for family care -such as maternity-, or improve social benefits and access to education.

The report mentions the need to direct the economy towards the neutrality of polluting emissions and considers current policies to be insufficient, for which reason it is necessary for industrial incentives to take into account energy efficiency.