The IMF raises growth in 2021 to 7%, assuming Biden’s infrastructure plans are approved

The International Monetary Fund raised its US growth projection to 7.0% sharply in 2021 due to a strong recovery from the COVID-19 pandemic and an assumption that much of President Joe Biden’s infrastructure and social spending plans will be adopted.

The IMF’s latest forecast, which marks the fastest US growth rate since 1984, is comparable to an April projection of 4.6% growth in 2021. The Fund raised its projected GDP growth in the US in 2022 to 4.9% compared to the previous forecast at 3.5% in April.

The new forecasts contained in the IMF’s annual assessment of US economic policies assume that the US Congress will pass the Biden administration’s US job plan and US family plan infrastructure, social spending and tax reform plans this year with a size and composition similar to their original proposals.

IMF Executive Director Kristalina Georgieva said the two packages would implement many recommendations that the IMF has given to the US for years, including investments to increase productivity, education and give more women access to the US workforce.

The IMF raises growth in 2021 to 7%, assuming Biden's infrastructure plans are approved

Steel beams on the tension bracket to be replaced will be displayed at Arlington Memorial Bridge in Washington, USA, June 20, 2016. REUTERS / Joshua Roberts

“They will increase demand in the short term and increase GDP by a cumulative 5.25% during 2022 to 2024,” Georgieva told a news conference, adding that they will also produce a lasting improvement in income and living standards with an increase of 1 % in GDP production, even after 10 years.

The IMF forecast came shortly after the Congressional Budget Office offered a similarly optimistic forecast for the U.S. economy this year. The non-partisan CBO’s forecast does not assume the fate of Biden’s spending plans and is based solely on applicable laws.

“Indicators suggest that there is still a large labor market gap that should serve as a safety valve to dampen underlying wage and price pressures,” the IMF said in its statement of assurance.

The fund added that it expects US inflation expectations to remain well-established, but these “will be hidden in the coming months by significant, temporary movements in relative prices”, which could cause personal consumer inflation to peak temporarily close to 4% later this year.

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

It said the United States should use fiscal policy to advance those goals, downsize ill-targeted tax spending and raise federal fuel taxes and introduce other carbon taxes.

(Reporting by David Lawder, further reporting by Andrea Shalal; editing by Jonathan Oatis and Dan Grebler)

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