IMF forecasts much stronger US growth of 7.0% this year

Washington

THE IMF is bullish on the US economic recovery, predicting growth will hit 7 per cent this year - much stronger than previously forecast and "the fastest pace in a generation", the Fund said in a report on Thursday.

The cheery analysis is a boon to President Joe Biden's administration and comes amid data showing an improving job market and on the eve of the all-important official employment report.

The International Monetary Fund's annual review of the US economy put growth at its fastest rate since 1984, and also boosted the 2022 GDP forecast to 4.9 per cent, 1.4 percentage points higher than the April estimate.

But while the IMF mostly cheered Mr Biden's policies to support the economy, the report flagged "significant concern" over the fact he has not pulled back on tariffs on goods like steel and aluminium imposed by his predecessor.

The United States has seen a "remarkable recovery," the Fund said, helped by "unprecedented" support from government spending and the Federal Reserve's "highly effective" stimulus measures.

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The report notes the potential for growth to be even higher than forecast, but the outlook assumes US$4.3 trillion in spending over the next decade from Mr Biden's proposed American Jobs Plan (AJP) and American Families Plan (AFP).

Together those programmes would fuel a more than 5 per cent GDP increase for 2022-2024, the IMF estimated. "Rather than just offering a short-term boost to demand that then fades away, the Jobs and Families Plans are expected to produce a lasting improvement in income and living standards for many years to come," IMF managing director Kristalina Georgieva told reporters.

However, if Congress fails to approve the legislation or sharply curtails the size, that would reduce the growth boost.

Asked about that, Ms Georgieva noted the bipartisan agreement on the physical infrastructure parts of the proposal. "Size is not everything. What matters more than sizes, what is the composition of the packages," she said.

The IMF report said there is "solid empirical evidence ... of the societal payoffs" of programmes like those Mr Biden has proposed, which include access to childcare to allow women to enter and remain in the workforce, and access to higher education and training to ensure younger workers have necessary skills for the jobs available.

A "permanent increase in taxes on corporate profits and on high income households is warranted" to pay for the proposals.

The Washington-based crisis lender reserved its harshest comments for Mr Biden's trade policies, and said removing trade barriers would help support his worker-centric agenda. "It is of significant concern ... that many of the trade distortions introduced over the past four years remain in place," the report said.

Mr Biden has continued tariffs imposed by former president Donald Trump on imported steel and aluminium, washing machines, solar panels, "as well as a range of goods imported from China". The IMF also questioned the tougher requirements set by the Trump administration for US products in government procurement which remain in place. "These policies should be reconsidered. Trade restrictions and tariff increases should be rolled back and 'Buy American' provisions should be tightly circumscribed," the report said.

The IMF forecast, which downplayed inflation risks, was in line with the Congressional Budget Office and Federal Reserve officials, which see strong government spending and a surge of consumer demand supporting the recovery and hiring as businesses work to return to normal.

The Fund is also projecting that the Federal Reserve will probably need to begin raising interest rates in late 2022 or early 2023 as increased government spending keeps inflation above its long-run average target.

The US central bank likely will begin to scale back asset purchases in the first half of 2022, staff from the Washington-based Fund said in a statement on Thursday following the conclusion of an assessment of countries' economic and financial developments.

"Managing this transition - from providing reassurance that monetary policy will continue to deliver powerful support to the economy to preparing for an eventual scaling back of asset purchases and a withdrawal of monetary accommodation - will require deft communications under a potentially tight timeline," IMF staff said in the concluding statement.

The Fed held interest rates near zero at its June 15-16 meeting and signalled it would probably keep them there through next year to help the US economy recover from Covid-19. Officials pencilled in two rate hikes for 2023 and seven of the 18 policy makers want to raise rates in 2022, up from four in March. AFP, BLOOMBERG