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US economy continues strong recovery amid tightening monetary policy


The US economy has maintained a robust recovery since the COVID-19 pandemic, characterised by rising wages and increased labour market participation, even amidst significant monetary policy tightening aimed at reducing elevated inflation, according to the latest OECD Economic Survey of the US.

The OECD projects that US GDP growth will slightly increase from 2.5 per cent in 2023 to 2.6 per cent in 2024, before slowing to 1.8 per cent in 2025. This growth is expected to be driven by consumer spending, continued labour market strength, and eventual monetary policy easing. Core inflation is forecasted to decline from 4.1 per cent in 2023 to 2.6 per cent in 2024, and further to 2.1 per cent in 2025, as wage growth and housing inflation moderate.

US economy continues to recover post-COVID-19 with rising wages and increased labour participation despite monetary tightening.
GDP growth is forecast to rise slightly to 2.6 per cent in 2024 before slowing to 1.8 per cent in 2025.
Government debt is at 122 per cent of GDP.
The OECD recommends fiscal adjustments and strengthened trade policies.

General government debt in the US has risen to 122 per cent of GDP in 2023, marking its highest level since World War II and the fourth highest in the OECD. The debt-to-GDP ratio is projected to continue increasing significantly over the coming decades under current tax and spending policies, as per the survey.

The OECD suggests that achieving fiscal sustainability would reduce the economy’s vulnerability to future shocks and ensure the government can maintain key functions. A steady, multi-year fiscal adjustment, including spending adjustments, is recommended to place government debt on a more prudent path. Replacing the debt ceiling with a simple medium-term debt ratio target would simplify existing legislative budget rules and provide clearer guidance for public budgeting.

The survey highlights weakened competition in parts of the economy, underscoring the importance of maintaining and strengthening open investment and trade policies. Productivity growth is expected to benefit from adjustments in education and immigration policies to ensure an adequate supply of highly skilled workers. This could involve expanding tailored measures to accelerate the learning of disadvantaged students.

The report also notes a significant acceleration in efforts to achieve the US climate goals, including the target of net zero emissions by 2050. While current measures are a step in the right direction, the OECD emphasises that additional policies will likely be needed to fully achieve climate objectives. A well-balanced policy mix, including carbon pricing, sectoral regulations, and subsidies, is recommended to meet these goals.

“The US has recovered swiftly and strongly from the pandemic, with strong growth in jobs and wages, while inflation is coming down. Monetary policy easing will be appropriate once there are clearer signs that inflation is durably moderating to meet the Federal Reserve’s 2 per cent target,” said OECD secretary-general Mathias Cormann.

Fibre2Fashion News Desk (DP)




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