(Bloomberg) -- It’s too early to talk about the risk of a recession in the U.S., where growth is likely to remain positive for the near future even as it slows down, according to the International Monetary Fund’s new chief economist.
Russia’s invasion of Ukraine has delivered a “sizable shock” to the global economy that will challenge policy makers to tame inflation without quashing growth, Pierre-Olivier Gourinchas said Thursday in his first interview since taking the job in January. Still, “we’re not looking at a recessionary environment in the U.S., at least in the near future,” he said. “What we are seeing is along the lines of a slowdown in growth but still solidly in positive territory.”
The IMF is in the process of updating forecasts it last issued in January, and is set to publish the results in its World Economic Outlook scheduled for April 19 during its Spring Meetings. Gourinchas said the fund is still gauging how much it will need to slash growth projections as a result of Russia’s invasion of Ukraine, which has sent energy and food prices soaring.
In the U.S., concerns about the growth outlook have been mounting as the Federal Reserve accelerates its plans for interest-rate increases to combat inflation that was already at the highest levels in four decades even before the war.
This week, yields on two-year Treasury bonds exceeded those on 10-year debt -- a so-called inversion of the yield curve that’s historically been a harbinger of contractions. Consumer sentiment has slumped to a decade low, even though Friday’s jobs report showed a still-robust labor market. Citigroup Inc (NYSE:C).’s global chief economist said Thursday the odds of a recession are “significant” over the next 18 months, with about a one-in-three chance of a global downturn and one-in-four for the U.S.
‘Different Things’
Gourinchas, a professor on leave from the University of California, Berkeley, joined the IMF in January, taking over as chief economist from Gita Gopinath, who was promoted to become the fund’s first deputy managing director.
Originally from France, Gourinchas earned his doctorate in economics from the Massachusetts Institute of Technology, writing his thesis on exchange rates and consumption. Olivier Blanchard, who himself went on to serve as IMF chief economist, was Gourinchas’s thesis adviser.
The war in Ukraine will be the major driver of downward revisions to the IMF’s 2022 outlook, and it will likely hit neighboring Europe harder than the U.S., Gourinchas said.
“European economies are more vulnerable,” he said. “They are more dependent on some Russian gas, and there might be more of a shock to the aggregate demand.”
The fund is also watching for the potential for disruption from new pandemic lockdowns in China, Gourinchas said.
Central bankers face a tough challenge as they seek to bring economies back onto a stable inflation path without crushing growth, and their response is likely to vary based on their proximity to and trade linkages with Russia and Ukraine, he said.
“You might face a different trade off if you’re, say, in Frankfurt at the ECB than if you’re in Washington at the Fed,” he said. “We’re not going to see necessarily a very aligned cycle, in terms of monetary policy, because countries are going to have to do different things.”
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