Unprecedented fiscal and monetary support, combined with the receding COVID-19 case numbers, should provide a substantial boost to US economic activity in the coming months, IMF STAFF concluded in their preliminary findings of an assessment of the US economy.
US economic growth in 2021 is expected to be around 7 per cent, the fastest pace in a generation, with modest risks to the upside. This strong economic performance should continue into 2022, with growth of around 5 per cent. These forecasts, however, are based upon an assumption that the American Jobs Plan and American Families Plan will be legislated during the course of 2021 with a size and composition that is similar to that proposed by the administration.
The concluding statement also highlighted the likely transitory nature of inflation in the US. While core inflation (which excludes more volatile food and energy prices) is expected to increase to nearly 4 per cent by the end of the year but back down to 2.5 per cent by the end of 2022.
The impact of spending measures: The economic impact of the American Jobs Plan (AJP) and American Families Plan (AFP) was a large focus of the IMF’s annual review. The plans envision substantial multi-year investments in infrastructure, research and development, education, childcare, and in-home care. Overall, IMF staff estimate that the AJP and AFP will add a cumulative 5.3 per cent to US GDP during 2022-24, as spending ramps up over the next few years. This estimate takes into account how different types of government spending have different fiscal multipliers.
The Need To Act Now In Sub-Saharan Africa
Sub-Saharan Africa is in the grips of a third wave of COVID-19 infections that threatens to be even more brutal than the two that came before. This is yet more evidence of a dangerous divergence in the global economy. One track for countries with good access to vaccines, where strong recoveries are taking hold. And another for those countries that are still waiting and at risk of falling further behind.
The only way for the region to break free from this vicious pandemic cycle is to swiftly implement a widespread vaccination programme, IMF Managing Director Kristalina Georgieva and IMF African Department Director Abebe Aemro Selassie write in a recent blog.
AFR chart
A global public good: Without significant, upfront, international assistance—and without an effective region-wide vaccination effort—the near-term future of sub-Saharan Africa will be one of repeated waves of infection, which will exact an ever-increasing toll on the lives and livelihoods of the region’s most vulnerable, while also paralyzing investment, productivity, and growth. In short, without help the region risks being left further and further behind.
And the longer the pandemic is left to ravage Africa, the more likely it is that ever more dangerous variants of the disease will emerge. Vaccination is not simply an issue of local lives and livelihoods. It is also a global public good. For every country—everywhere—the most durable vaccine effort is one that covers everyone, in every country.
Where Do We Go From Here?
IMF Chief Economist Gita Gopinath once again stressed how important a more equitable vaccine distribution is for a sustained global recovery from the pandemic.
“No. 1 is to recognize that wee need all countries to get to at least 40 per cent vaccination rates by the end of this year and 60 per cent by the middle of next year,” she said in an event with World Bank Chief Economist Carmen Reinhart and European Bank for Reconstruction and Development (EBRD) Chief Economist Beata Javorcik. The discussion took place during the EBRD Annual Meeting and Business Forum.
How do we get there? In the near term, the issue isn’t the ability of countries to sign contracts to procure vaccines, it’s getting pre-existing supply to countries in need. To reach the 40 per cent target by the end of this year, countries that bought surplus vaccines will need to share about 250 million doses by September and an additional 750 million doses by the end of the year. Total surplus among these countries adds up to about 2 billion doses. “This should be very doable,” Gopinath said.
What’s going to happen to inflation? Supply and demand mismatches, a high number of unfilled jobs yet many still claiming unemployment benefits, a lingering health threat–these are all creating unique conditions during the recovery and feeding inflation.
“There is reason to believe that by next year, these numbers will come back down to more normal levels. But I think the million dollar question is what happens to inflation expectations,” Gopinath said, noting that the inflation picture varies by country.
If the transitory shocks of supply and demand mismatches, labor issues and market issues persist, that could influence inflation expectations. “That might then enter into contract negotiations on wages and then on prices, and that’s when we enter into a more difficult space,” she said.
