IMF downgrades US growth forecast from 2022 estimates amid rising interest rates and inflation

The United States faces a 'rocky recovery' as it looks to build back from the financial uncertainty around the financial sector, high inflation, the war in Ukraine and Covid.

This comes despite previous assurances from Biden the 'economic plan is working... it's fiscally responsible... we got more work to do but we're making a lot of progress.'

An update released today forecast 1.6% growth for the US this year, an upgrade on the 1.4% expected in January but down significantly from the 2.8% last year.

The report warns of the recent 'banking turbulence' in the United States, brought on by the collapse of SVB and Signature Bank in March, and inflationary pressures.

While consumer spending and a robust job market have helped confidence since January, the overall picture is still 'clouded' by uncertainty, the IMF said.

The United States is poised to grow 1.6% in 2023, down from 2.8% forecast by the IMF last year

International Monetary Fund Director of the Monetary and Capital Markets Department, Tobias Adrian, speaks during a press briefing on the Global Financial Stability Report, during the IMF and World Bank Spring Meetings, at the IMF headquarters in Washington, DC, on April 11

The report notes that worldwide economic activity has experienced a 'sharper than expected' slowdown in light of a global cost-of living crisis and inflationary pressure.

The cost-of-living crisis, the invasion of Ukraine and Covid-19 feed into a generally bleak picture for the months ahead as countries look to rebuild economies.

Global headline inflation has been in steady decline since mid-2022, helped along by a fall in energy prices, especially in the United States and Latin America, it notes.

But many have offset inflation by raising interest rates, which the IMF warns has affected house building around the world, as well as business investment.

The slight upgrade to America's performance since January is put down to the availability of jobs and healthy consumer spending across the country.

This was helped along by government aid post-pandemic, encouraging consumers to start spending as businesses opened up again.

President Biden assured that his economic plan was working in a February statement, focusing on lowering costs 'from child care to housing to college to healthcare' and providing breathing room for families, and creating 'good jobs' for the working and middle classes.

U.S. Treasury Secretary Janet Yellen plans to give an optimistic speech Tuesday about the state of the U.S. economy and the banking system, which she will say 'remains sound.'

'During the G20 in February, I said that the global economy was in a better place than many predicted last fall... that basic picture remains largely unchanged. Still, we remain vigilant to the downside risks.'

The IMF is more cautious, warning that 'Much uncertainty clouds the short- and medium-term outlook as the global economy adjusts to the shocks of 2020–22 and the recent financial sector turmoil. 

'Recession concerns have gained prominence, while worries about stubbornly high inflation persist.'

Pierre-Olivier Gourinchas, the IMF's Chief Economist, said: 'The world economy is still recovering from the unprecedented upheavals of the last three years, and the recent banking turmoil has increased uncertainties. 

'We expect global output growth to fall from 3.4% last year to 2.8% in 2023, before rising to 3% in 2024, mostly unchanged from our January projections. 

'Advanced economies are expected to see an especially pronounced growth slowdown from 2.7% in 2022 to 1.3% in 2023. 

'Global headline inflation is set to fall from 8.7% in 2022 to 7% in 2023 on the back of lower commodity prices but underlying core inflation is proving to be stickier.

Importantly, this outlook assumes that recent financial stresses remain contained.'

International Monetary Fund director of the research department Pierre-Olivier Gourinchas speaks at a news conference during the World Bank/IMF Spring Meetings in Washington today

China, meanwhile is expected to grow by 5.2% in 2023 as it recovers from years of self-imposed lockdowns.

This is expected to level off some at 4.5% by 2024 - still an improvement on the 3% set last year.

Britain is to be the worst performer in G7, slumping 0.3% in 2023 and only growing by 1% in 2024. 

This is nonetheless a slight improvement on January's prediction the country would shrink by 0.6% this year.