The U.S. economy comes out on top, IMF forecasts

The U.S. economy has defied predictions of a recession and is on track to continue its world-beating streak of robust growth, according to new forecasts from the International Monetary Fund.

Why it matters: The world faced a slew of shocks in recent years — pandemic, inflation, war and more. But one thing has stayed constant: The U.S. economy has come out in a better position than other large, rich nations.

Driving the news: The IMF’s World Economic Outlook, out Tuesday morning, projects that the United States will grow 2.8% this year, an upgrade of 0.2 percentage point from its July forecast. That is set to be the fastest growth among the G7 major economies, as was also the case in 2023.

• This time last year, the IMF anticipated a U.S. slowdown to 1.5% growth in 2024. It hasn’t happened.
• The fund projects 2.2% U.S. growth in 2025, a 0.3 percentage point upgrade from July, which would lag only Canada among G7 nations.
• The fund projects U.S. consumer prices will rise 1.9% next year, implying that the pandemic price spike is over and inflation next year will be back to the Federal Reserve’s target.

What they’re saying: “The news on the U.S. is very good,” said IMF chief economist Pierre-Olivier Gourinchas on Tuesday morning in a press conference.

State of play: He noted that the fund has not only upgraded its 2024 and 2025 growth forecasts for the U.S. but that data revisions have caused it to upgrade its 2023 historical numbers.

• Gourinchas attributed the U.S. outperformance to two major factors. First, there has been strong productivity growth, which is “somewhat unlike other advanced economies.”
• Second is a rise in immigration. There’s been an “increase in foreign-born workers in the U.S. that have been integrated fairly quickly into the labor force,” he said, adding that “the labor market picture remains one that is fairly robust, even though it has cooled off … from very, very tight levels.”
• “I think the risks of a recession in the U.S., in the absence of very sharp shock, would be somewhat diminished,” said Gourinchas.

Of note: He said that the Fed’s recent pivot toward interest rate cuts reflects progress on bringing inflation down and is meant to prevent the labor market from overshooting and getting significantly worse.

The U.S. upgrade was a key reason the IMF’s projection for global growth held steady at 3.1%.

• It made up for slower growth expectations in other advanced economies, which are dragging down global growth. Compared to July numbers, the fund downgraded its 2024 growth outlook notably for Japan (by 0.4 percentage point) and Germany (by 0.2 point).
• Consumer spending and business investment in the U.S. have been stronger than the IMF expected, forcing economists to push up growth forecasts for the rest of the year and 2025.

The big picture: In a blog post, Gourinchas writes the “global battle against inflation has largely been won,” with worldwide inflation expected to fall to 3.5% by the end of next year — below the average in the two decades preceding the pandemic.

• That allows central banks to loosen their grip on major economies: “This would provide much-needed macroeconomic breathing room, at a time where risks and challenges remain elevated,” Gourinchas wrote.

Yes, but: The IMF subtly scolds the U.S. and other countries that have implemented industrial policies and tariffs.

• “[W]hile industrial and trade policy measures can sometimes boost investment and activity in the short run — especially when relying on debt-financed subsidies — they often lead to retaliation and fail to deliver sustained improvements in standards of living,” Gourinchas wrote.