America is probably going to avoid a recession and that’s giving markets a ‘good reason to be more upbeat,’ according to the head of the IMF

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After a year of consistent recession predictions from economists, billionaire investors, and CEOs, the head of the International Monetary Fund (IMF) says forecasters may have been too pessimistic, and she’s not surprised the stock market is having a strong start to the year.

“The markets have good reason to be more upbeat because what they are finally seeing is the U.S. economy is likely to avoid recession,” Kristalina Georgieva, managing director of the IMF, said at the World Government Summit in Dubai Monday, per Reuters

Georgieva believes that the combination of resilient U.S. and European labor markets, China’s economic reopening after a string of COVID-related lockdowns, and fading inflation are helping to boost both the U.S. and global economy. 

Chinese consumers are “rushing to spend” the money they saved during the extended lockdowns imposed under Beijing’s strict COVID-zero policy, according to the IMF chief. And central banks’ combined interest rate hikes have also had “surprisingly good results” in taming runaway consumer price increases.

Georgieva noted that inflation, which was the stock market’s worst enemy in 2022, is “finally” slowing. But she added that her economic outlook was “less bad,” but still “not good,” and predicted that monetary tightening will continue until 2024.

“The fight is not yet won,” she said. 

IMF economists expect global economic growth, as measured by GDP, will slow from 3.4% in 2022 to 2.9% this year under the weight of higher interest rates. And in the U.S., they’re forecasting a drop from 2% GDP growth in 2022 to 1.4% this year and just 1% in 2024. 

While “balance of risks remains tilted to the downside” for the global economy, the IMF argued in its January World Economic Outlook, that risks have also “moderated” in recent months. At the World Economic Forum’s annual conference in Davos, Switzerland in January, Georgieva said that she expects economic growth to begin recovering by the second half of 2024 as well.

“Growth in 2023 will slow down,” she noted. “The good news though is that we expect growth to bottom out this year and 2024 to be a year in which we finally see the world economy on an upside.”

A shift in tone

Georgieva’s latest comments represent a distinct shift in tone from what she and the IMF’s leading economists told reporters last year. Throughout 2022, the international lending agency repeatedly slashed its global economic growth forecasts

Pierre-Olivier Gourinchas, the IMF’s director of research, warned in an April blog post that growth was fading and we “may soon be teetering on the edge of a global recession.” And in October, Georgieva, who served as the the CEO of World Bank before starting her current position at the IMF, argued that the pandemic, the Ukraine war, and a series of climate disasters were combining to create a “darkening global outlook.”

“In less than three years we lived through shock, after shock, after shock,” she said. “Our world economy is like a ship in choppy waters.”

As late as December, Georgieva made the case that the global economy was facing “a tough year, tougher than the year we leave behind.”

“We expect one-third of the world economy to be in recession,” she told CBS’s ‘Face the Nation’ in an interview published January 1. “Why? Because the three big economies — U.S., EU, China — are all slowing down simultaneously.”

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