JAKARTA (TheInsiderStories) – IHS Markit upwardly revises US GDP growth forecast to 5.7 percent in this year on near certainty of a US$1.9 trillion fiscal stimulus package. It said, the GDP to reach pre-pandemic peak by middle of 2021 and the employment to reach pre-pandemic peak in early 2023.
“The new near certainty of a $1.9 trillion pandemic relief measure by spring—coming against the backdrop of falling COVID-19 infection rates, some relaxation of containment measures, and an acceleration of the national inoculation campaign—encouraged us to revise up our forecast of GDP growth for 2021 from 4.0 to 5.7 percent, and for 2022 from 3.9 to 4.1 percent,” said Joel Prakken, chief US economist at IHS Markit on Tuesday (02/09).
He expect this growth to push its previous peak by the middle of this year and eliminate the output gap in 2022. In addition, said IHS Markit, the previous peak of employment will be regained in early 2023, and the unemployment rate is expected to decline to 3.5 percent by late 2024.
“With such expansive fiscal policy providing for a quicker improvement in labor markets and an earlier rise in sustained inflation, we’ve revised our assumptions on monetary policy. We now expect the Fed to start raising the federal funds rate in mid-2024, more than two years earlier than previously assumed.” he adds.
US’ bureau of analysis (BEA) reported, in the fourth quarter (4Q) of 2020, US economy expanded to 4 percent, slowing from a record 33.4 percent expansion in 3Q as the continued rise in COVID-19 cases and restrictions on activity moderated consumer spending. Both business and housing investment remained robust and exports grew at a double-digit pace while personal consumption slowed and public expenditure edged down.
During last year, the GDP contracted 3.6 percent, the worst performance since 1946 from a year ago grew 2.2 percent, due to a wave of coronavirus infections. The decrease in real GDP in 2020 reflected decreases in personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, and state and local government that were partly offset by increases in federal government spending and residential fixed investment.
The decrease in PCE was more than accounted for by a decrease in services. BEA said, current-dollar GDP decreased 2.3 percent or US$500.6 billion in 2020 to a level of $20.93 trillion, compared with an increase of 4.0 percent or $821.3 billion in 2019. In the same year, the price index for gross domestic purchases increased 1.2 percent compared with an increase of 1.6 percent in 2019.
The PCE price index also increased 1.2 percent in 2020, compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index increased 1.4 percent, compared with an increase of 1.7 percent.
BEA also reported, the increase in real GDP reflected increases in exports, nonresidential fixed investment, personal consumption expenditures, residential fixed investment, and private inventory investment that were partly offset by decreases in state and local government spending and federal government spending.
“The increase in fourth quarter GDP reflected both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of the COVID-19 pandemic, including new restrictions and closures that took effect in some areas of the United States,” wrote the report.
While, IHS Markit sees, the outlook for 2021 seems brighter than it was some months ago as vaccination rollout began although at a slower than expected pace and as the new Joe Biden administration unveiled a stimulus plan. However, doubts remain whether Congress will pass the bill and how long it will take for Americans to start receiving checks.
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