NEW YORK: The United States is the MVP of GDP. That was the International Monetary Fund’s verdict at its spring gathering last week. The U.S. star turn is much needed as other key members of the global growth team, like Europe and China, are lagging. But its performance has been fueled by worryingly high debt and one-off gains in productivity and the workforce. In the long run, even this extraordinary athlete may run out of puff.
As central bankers and finance ministers arrived for the semi-annual event organized by the IMF and the World Bank, Washington’s famous cherry trees were already shedding their flowers. It was an apt metaphor: Wars, trade tensions and high- interest rates have taken the bloom off the global economy.
Sure, the IMF predicts that world GDP will expand by 3.2 percent both this year and next – the same pace as in 2023. But that’s below the 3.8 percent annual average the global economy managed between 2000 and 2019. By 2029 the IMF expects growth to be just 3.1 percent, the lowest rate in decades.
Without the United States, results could have been even worse. After growing by 2.5% last year – a pace matched only by Spain among advanced countries - the world’s biggest economy will expand by 2.7 percent in 2024, the IMF projects. That’s more than three times faster than the euro zone.
China, the other reliable recent contributor to global GDP, is also limping. Growth there will slow from 5.2 percent last year to 4.6 percent in 2024 and 4.1 percent in 2025, the IMF reckons. “One growth engine is better than none,” a glass-half-full policymaker noted in the IMF’s cavernous headquarters. But what if that engine sputters?
A closer look at the U.S. economy’s vital statistics suggests there’s a danger of fatigue. The Covid tragedy prompted the federal government to unleash huge, opens new tab stimulus that equaled around 27 percent of GDP in 2020-2021, according to the Tax Foundation. It worked: Fiscal help boosted GDP growth by nearly 14 percentage points in the second quarter of 2020 alone, Brookings’ Hutchins Center calculates, opens new tab. And it left households with $2.1 trillion of excess savings above the pre-pandemic trend, according, opens new tab to the San Francisco Federal Reserve.
The pandemic stressed Uncle Sam’s balance sheet, though. The U.S. budget deficit went from 5.8% of GDP in 2019 to nearly 14 percent in 2020 and more than 11% in 2021. And the government continues to spend.
The IMF estimates the deficit will average nearly 6.5 percent of domestic output each year until 2029 – almost double its level in 2015. American consumers have also continued to splash out. Last year, they spent 2.2 percent more than in 2022, above the 1.7 percent average growth between 2006 and 2015, the IMF reckons. In the euro zone, private consumer expenditure only expanded by 0.5 percent last year.
Since consumption accounts for nearly 70 percent of U.S. GDP, the vitality of American consumers is crucial to economic performance. They may be flagging, though. Excess savings have dwindled, opens new tab to $30 billion, while consumers are maxing out their credit cards.
At the end of last year, 9.7 percent of card balances had not been paid for 90 days – the highest level since early 2021 – according, opens new tab to New York Federal Reserve data. Higher mortgage rates are scaring off buyers, with home sales falling 4.3 percent in March.
Low unemployment, decent wage growth and investment gains from the strong stock market may prolong the U.S. spending spree for a while, but the IMF expects growth in private consumer expenditure to fall to 1.6 percent by 2025.
The U.S. economy’s staying power has surprised the IMF and other forecasters. This is partly down to two factors which have proved hard to model, and which may be difficult to sustain. The first is a surge in immigrants. In November, the Congressional Budget Office upgraded its estimate of net immigration into the U.S. from 1 million people to 3.3 million. —News Desk