IMF says the US economy is growing at the fastest rate since 1984

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The US economy will surpass its pre-pandemic size as growth hits 6.4% this year, the IMF said, 1.3 percentage points higher than the group’s forecast in January. The recovery will help the world economy grow by 6% in 2021, a 0.5 percentage point upgrade from the IMF’s previous outlook. The estimates are broadly in line with Wall Street’s expectations.
“At $ 1.9 trillion, the new fiscal package from the Biden administration is expected to provide a strong boost to growth in the United States in 2021 and deliver significant positive spillover effects for trading partners,” the IMF said in a report. Other governments and central banks around the world have also pumped trillions into the global economy.

The IMF said the “unprecedented policy response” to the pandemic means that “the recession is likely to leave smaller scars than the 2008 global financial crisis.” The group estimates that global production fell 3.3% in 2020, while the US economy contracted 3.5%.

There are already signs that the US recovery is gaining momentum. US employers created 916,000 jobs in March, the largest addition since August. The manufacturing sector in the US is also moving forward, with the ISM Manufacturing Index recently posting its best reading since 1983.

The IMF expects the rollout of the coronavirus vaccine and massive government stimulus this year to combine to produce the fastest annual growth rate in the United States since 1984 under President Ronald Reagan. But many other countries will have to wait until 2022 or 2023 to regain all of the output lost during the pandemic. According to the IMF, global production growth will slow to 4.4% next year.

“Multi-speed recovery is underway across regions and between income groups, coupled with wide disparities in the pace of vaccine rollout, levels of economic policy support and structural factors such as tourism dependency,” said Gita Gopinath, research director at the IMF. “The divergent recovery paths are likely to lead to significantly greater differences in living standards between developing countries and others.”

The updated US forecast means the world’s largest economy is on track to grow faster than many other developed countries this year. The IMF expects growth of 4.4% in the 19 countries that use the euro as Europe battles a new wave of coronavirus that has forced Germany, France and Italy to tighten restrictions. Production in Japan is expected to increase by 3.3%.

But some countries in Asia will still outpace the United States. The IMF expects China, the only major economy to avoid a recession last year, to grow by 8.4% in 2021 – much stronger than the country’s official forecast of more than 6%. Production in India will increase by 12.5% ​​in the fiscal year to March 2022.

The IMF addressed continued government stimulus and vaccine rollout for stronger growth forecasts. It said consumer prices can be volatile, but it does not expect high inflation rates to take root as a result of weak wage growth and unemployment.

Still, the IMF warned that its projections “surround a high degree of uncertainty,” due to the wide range of possible coronavirus developments. “More advances with vaccinations can increase the prognosis, while new virus variants that evade vaccines can lead to a sharp decline,” the group said in its report.

While advanced economies were hit harder than developing countries by the effects of the global financial crisis of 2008, the IMF expects the opposite to be the case in the pandemic. The group also said that young people, women and low-skilled workers are more likely to lose their jobs due to the coronavirus.

“Once the health crisis is over, policy efforts can be more focused on building resilient, inclusive and greener economies, both to support the recovery and increase potential output,” said Gopinath.

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