IMF Projects UK Will Avoid Recession, Adding to Hope for the US

In an encouraging sign for the resilience of the U.S. economy, the International Monetary Fund projected Tuesday that the recession it anticipated for the U.K. as recently as last month will now be avoided.

The IMF, which tracks the economies of its 190 member countries, now expects gross domestic product in the U.K. will grow a modest 0.4% this year, rather than shrinking 0.3% in a mild recession. Strong wage growth and government intervention will help counter high inflation, leading to better-than-expected consumer demand. At the same time, lower fuel prices and smoother supply chains will improve the supply side of the economy, the IMF said.

The brighter forecast for the U.K. adds to optimism that the U.S. economy may also evade a widely expected recession.

To combat soaring inflation, central banks in both countries have made steep increases in benchmark interest rates, raising borrowing costs for already-strapped consumers and slowing both economies. But during past periods of hardship, the global economy wasn’t coming out of a pandemic, said Mark Zandi, chief economist at Moody’s Analytics. Circumstances are unique enough to make him hopeful about the resilience of both economies.

“The US and UK economies are similar in many respects,” Zandi told The Messenger in an email. “If the UK can navigate through without recession, so too can the US.”  

There are a number of commonalities supporting both economies, Zandi said: Savings accounts padded by pandemic subsidies are still cushioning household budgets, employers aren’t as reluctant to lay off workers as you might think, and there’s still a huge demand for housing.

Zandi wrote about these factors in a separate report Tuesday, saying fears of a recession in the U.S. are increasingly overstated. Inflation is abating — albeit slowly — and the unusual circumstances surrounding the pandemic can’t be underestimated, he said.

“While history suggests that high inflation and an aggressive Fed mean recession is a serious threat, this time is different enough,” he wrote.

As of April, the IMF expected U.S. GDP to grow 1.6% this year and 1.1% in 2024. It wasn’t clear whether this reflected expectations of a recession, however, since some economists who project quarter-to-quarter declines in GDP later this year still predict modest growth for the full year.