US 'very close' to soft landing, IMF chief economist says

WASHINGTON — The United States is very close to achieving a soft landing, the rare feat of tackling inflation without spurring a long recession, the IMF's chief economist told AFP.

Pierre-Olivier Gourinchas spoke to AFP ahead of Tuesday's publication of the International Monetary Fund's (IMF's) flagship World Economic Outlook (WEO) report on the health of the world economy.

The WEO report predicts that global growth will be slightly slower this year and next amid a slowdown in both China and India, while the US will remain a bright spot and the eurozone will continue to grow more slowly.

At the same time as US growth has remained buoyant, inflation has continued to ease toward the Federal Reserve's (Fed's) long-term target of 2 per cent, and the labour market has cooled — but remained pretty resilient.

"I think for the US, we're very close," Gourinchas said when asked if the Fed had successfully engineered a soft landing.

"Globally, what we're seeing is an inflation picture that is coming very close to central bank targets within the course of the next year," he added.

Gourinchas said that a number of supply-side factors had been supporting the US economy, including "very, very good" US productivity data, and a large rise in the number of foreign-born workers, which helped spur growth without fueling inflation.

But while it may have been good for growth, this spike in immigration has been controversial in the United States, where the Republican former president Donald Trump has sought to make it a key campaign issue ahead of the US presidential election on November 5.

Addressing China's property woes 

Gourinchas said the main issue for China's economy remained its ailing property sector, a key driver of growth in the world's second-largest economy.

"If you want to revive growth in China, you need to address the property sector," he said, adding that China must also find ways to "develop its domestic growth engines".

China has a very high level of households savings which, Gourinchas said, was party due to the lack of an effective safety net to support people.

"If we put in place these kind of safety nets... then they will reassure households," he said. "That will allow them to start spending more domestically, and that will help sustain medium term growth in China."

India's recent run of explosive growth is also showing signs of slowing, as the "pent-up demand accumulated during the pandemic" runs out, the IMF wrote in its WEO report.

"It's very important for them to try to grow as quickly as they can," Gourinchas said, adding that India should look to develop and deepening its domestic market integration and find ways to lift up its human capital.

"These are certainly vectors by which India could boost its growth," he said.

Russian economy surprises again 

Russia's economy has been surprisingly strong despite its costly ongoing war in Ukraine, now into its third year.

In October's WEO report, the IMF again upgraded its outlook for the Russian economy, and now predicts economic growth of 3.6  per cent this year — up 0.4  percentage-points from July — and slower growth of 1.3  per cent in 2025.

While Russia's economy "has been doing better than expected in the first half of the year", it is now facing rising price pressures, Gourinchas said.

"This is an economy that is trying to, at the same time, serve the needs of the domestic population, but also it is a war economy," he continued.

"So it needs to repurpose and invest in these sectors, and that's putting pressure on resources, and that's reflected in inflation," he added.