IMF raises US growth forecast for 2021 to 7%, assumes Biden spending plans are passed

WASHINGTON, July 1 (Reuters) – The International Monetary Fund has sharply raised its growth projections in the United States for 2021 to 7.0% due to a strong recovery after the COVID-19 pandemic and a hypothesis according to which much of President Joe Biden’s infrastructure and social spending plans will be enacted.

The latest IMF forecast, marking the fastest pace of US growth since 1984, compares to an April projection of 4.6% growth in 2021. The Fund has raised its forecast for US GDP growth for 2022 to 4.9%, against 3.5% in April.

The new forecast, contained in the IMF’s annual assessment of US economic policies, assumes that the US Congress will adopt the Biden administration’s infrastructure, social spending and tax reform plans this year with a similar size and composition. to their initial proposals.

IMF Managing Director Kristalina Georgieva said the two packages will implement many of the recommendations the IMF has made for the United States for years, including investments to boost productivity, education and enable more of women to join the American workforce.

“They will increase demand in the short term, increasing the cumulative GDP by 5.25% from 2022 to 2024,” Georgieva said at a press conference, adding that they will also produce a lasting improvement in income and the level of life, with a 1% increase in GDP produced even after 10 years.

The IMF forecast came shortly after the Congressional Budget Office offered equally optimistic forecasts for the US economy this year. The CBO’s non-partisan forecast makes no assumptions about the fate of Biden’s spending plans and is based only on applicable laws. Read more

“The indicators suggest that a significant slowdown in the labor market persists, which should serve as a safety valve to ease underlying pressures on wages and prices,” the IMF said in its review statement.

The Fund added that it expects inflation expectations in the United States to remain well anchored, but these “will be masked over the next few months by large and transient relative price movements”. which could temporarily peak personal consumption expenditure inflation at nearly 4% later this year.

The IMF has said the United States should prioritize spending on programs with the greatest impact on increasing productivity, increasing labor force participation, reducing poverty and helping people. the carbon transition.

He said the United States should use tax policy to achieve these goals, reducing poorly targeted tax expenditures and increasing federal fuel taxes and introducing other carbon taxes.

Reporting by David Lawder, additional reporting by Andrea Shalal; edited by Jonathan Oatis and Dan Grebler

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