IMF Says "No UK Recession"...Only G7 Member to Reverse Recession Forecast

'Outlook: Germany Expected to Underperform'

The International Monetary Fund (IMF) has reversed its previous forecast that the UK would be the only country among the Group of Seven (G7) to experience negative growth this year, now projecting that the UK will avoid a recession.

In the annual consultation results released on the 23rd (local time), the IMF presented the UK's economic growth forecast for this year at 0.4%. This is an upward revision from the -0.3% figure announced last month. In January, the IMF had predicted that the UK’s economic growth rate would contract by -0.6%, expecting the UK to be the only G7 country to show negative economic growth this year.

Furthermore, the UK economy, which was previously expected to perform the worst among major countries, is now forecasted to outperform countries like Germany. However, it is still expected to slightly lag behind Russia, France, and Italy, which are projected to grow by 0.7%.

The turnaround in the UK economy, which has faced low growth concerns for nearly a decade and even fears of the longest recession since the global financial crisis, is attributed to strong wage growth and the resulting improvement in demand.

The IMF explained, "We reflected a stronger-than-expected demand recovery supported by robust wage growth and falling energy prices." The demand improvement is attributed to faster-than-usual wage increases, expanded government spending, and improved business confidence indices.

[Image source=EPA Yonhap News]

Kristalina Georgieva, IMF Managing Director, told reporters on the day, "UK authorities have taken firm and responsible measures in recent months," adding, "(The UK government) is prioritizing the fight against inflation, which is the right thing to do."

However, the IMF warned of "significant risks" to the medium-term outlook due to inflationary pressures. It pointed out that the UK’s economic growth rate is expected to remain low at 1% in 2024 and 2% in both 2025 and 2026.

It also emphasized that additional interest rate hikes will be necessary to reduce inflation and that rates will need to be maintained at a high level for an extended period. The Bank of England (BOE), the UK’s central bank, raised its benchmark interest rate to 4.5% through 12 rate hikes by early this month, marking the highest level since the 2008 financial crisis.

The IMF identified the risk of wages excessively driving up prices. The UK’s inflation rate in March was 10.1% year-on-year, easing from 10.4% in the previous month but still higher than that of the United States and the European Union (EU). The IMF expects the UK’s inflation rate to fall to the BOE’s target of 2% only by mid-2025, remaining around 10% in March.

The IMF also added that the issue of the historically high number of people not working due to long-term illness must be addressed.

This content was produced with the assistance of AI translation services.