The International Monetary Fund on Tuesday lowered its forecast for the U.S. economy in 2024 by 0.1 percentage point, putting annual growth at 2.6 percent.
The firm maintained its forecast for global economic growth this year at 3.2% and raised its forecast for 2025 to 3.3% from 3.2% predicted in April.
The international financial institution also expects the employment situation to worsen next year and Congress to begin cutting spending, and kept its 2025 U.S. economic growth forecast at 1.9%.
“Growth is expected to slow to 1.9 percent in 2025 as labor markets weaken and consumption slows, and fiscal policy begins to tighten gradually,” IMF economists wrote in their July World Economic Outlook update.
According to the Federal Reserve’s latest economic forecast summary, hiring is expected to be relatively weak next year, with the unemployment rate expected to rise to 4.2% from the current 4.1%.
Federal Reserve Chairman Jerome Powell told Congress this month that the U.S. central bank is no longer just interested in keeping inflation in check, but is also mindful of the growing sensitivity of labor conditions, given the sharp decline in the ratio of job openings to job seekers.
The U.S. Consumer Price Index (CPI) fell in June for the first time since the pandemic, down 0.1% from May. The CPI fell to a 3% year-over-year increase in June, the first time it has fallen below 3% since March 2021.
The IMF warned that the pace of global de-inflation is slowing, noting that services sector inflation remains higher than average despite recent downward trends in prices.
“Nominal wage growth has outpaced inflation in some countries and remains strong, reflecting the outcomes of wage negotiations earlier this year and near-term inflation expectations above target,” the IMF economists wrote.
A surge in profit margins early in the pandemic recovery was replaced by rising employment costs in early 2024. Profit margins fell in the first quarter of this year as compensation and non-labor costs rose. Annual wage growth has outpaced inflation since May last year, but both have been declining.
The IMF said rising nominal wages, combined with falling productivity, could make it more difficult for companies to restrain price increases, especially when profit margins are thin.
The fund warned of additional price pressures arising from protectionist economic policies and renewed trade disputes, a possible reference to new China-focused tariffs from the Biden administration and proposals from the Trump campaign to impose general tariffs if Trump wins the presidential election in November.
Economists at another U.N. economic body, the Conference on Trade and Development (UNCTAD), sounded a similar warning this month, pointing to the possibility of more restrictive trade policies and a return to domestically focused production policies.
“The use of trade-restrictive measures and inward-looking industrial policies is expected to have a negative impact on the growth of international trade, particularly in some strategic sectors,” the UNCTAD economists wrote.
The agencies also warned about the impact of rising interest rates on the strengthening of the dollar, which they said would affect trade trends and capital flows between countries.
In their July world trade report, UNCTAD economists were more optimistic than the IMF about the outlook for slowing global inflation and U.S. interest rate cuts.
“Easing global inflation and improving economic growth forecasts suggest a reversal of the downward macroeconomic trend that has characterized much of 2023,” they wrote, adding that a rate cut “could stimulate international trade by weakening the value of the dollar and increasing both prices and volumes.”
