U.S. Economy Recovering, Debt And Unemployment Next Challenges
Growth is resuming thanks to government policies and spending to counteract the worst effects of the recession, the IMF said the United States now faces the challenge of bringing its debt to more sustainable levels without jeopardizing the recovery.
The IMF forecasts U.S. economic growth of just over 3 ¼ percent in 2010 and about 3 percent in 2011, with inflation very low and unemployment remaining above 9 percent.
“We are less optimistic than the authorities about the path of growth,” David Robinson, a deputy director in the IMF’s Western Hemisphere Department, told reporters. “In part this comes from our research that after a financial crisis there is a permanent loss of output.”
A final report will be issued once it has been discussed by the IMF’s 24-member Executive Board in late July.
Every year, the Fund conducts reviews of its member countries’ economies as part of its work in monitoring the health of the global economy.
Robinson said one of the most serious problems facing the United States is the rise in structural unemployment, which is a mismatch of the supply and demand for labor with the necessary skill set.
The IMF forecasts a gradual reduction in unemployment, which is a typical experience after financial crises according to Robinson. Evidence from the recent crisis shows the drop in employment was much larger than the drop in output, which Robinson attributes to the high degree of uncertainty brought on by the worst economic recession in 80 years.
“Over the medium term we see a need for more fiscal measures than the authorities presently do,” said Robinson. “We both see in the short run there is a balance between starting fiscal consolidation and making sure that fiscal policy doesn’t jeopardize the recovery.”
Stabilizing the debt
While support for growth remains appropriate for this year, in light of the continued underlying weaknesses in the economy, the next challenges for the United States will be to withdraw the support that the government put in place, and to stabilize the size of its public debt, according to the IMF.
The global lender says the United States, which plans to halve the budget deficit by 2013 and stabilize public debt at just over 70 percent of GDP by 2015, will need to cut back on spending and increase revenues. The government could accomplish the latter...
To continue reading
Request your trial