U.S. GDP to grow by over 6 pct this year owing in part to fiscal policy: PIIE

2021-04-02 12:06

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WASHINGTON, April 1 (Xinhua) -- The U.S. gross domestic product (GDP) is on track to grow by more than 6 percent this year, owing in part to its fiscal policy, according to the Peterson Institute for International Economics (PIIE)'s semiannual Global Economic Prospects released Thursday.

"Of the large advanced economies, the United States will expand the fastest in 2021, owing in part to its aggressive fiscal policy response," said PIIE Senior Fellow Karen Dynan, who is also former chief economist at the U.S. Treasury Department.

Europe is lagging because of a smaller fiscal response and its struggles to contain the virus, while Britain will see some continued drag from the Brexit transition, Dynan said. The PIIE forecast Euro Area and Britain to grow by 4.4 percent and 3.8 percent this year, respectively.

Among large emerging economies, China leads the recovery, after "containing the virus effectively" in 2020 and suffering only indirect effects from recessions elsewhere, she noted. The PIIE forecast Chinese economy to grow by 8.5 percent this year.

Global economy, meanwhile, is expected to expand by 5.6 percent in 2021, followed by 4.4-percent growth in 2022, according to the outlook.

The Washington D.C.-based think tank forecasts core U.S. inflation at 2.2 percent by the end of 2022, and projects unemployment to decline to 5.0 percent by yearend and 4.4 percent by the end of 2022, still higher than pre-pandemic level of 3.5 percent.

At a virtual event releasing the outlook, PIIE President Adam S. Posen said that U.S. headline Consumer Price Index (CPI) inflation could average 3.25 percent or higher over the next 18 months, much higher than current Federal Reserve and market forecasts.

Posen said he believes the Fed will likely begin raising rates in early 2023, adding that a limited amount of interest rate hikes, on the order of 100 basis points, would be able to help re-establish price stability.

Dynan, meanwhile, noted that the strength of inflationary pressures over the next few years is especially "uncertain," as there is no historical analog to the combination of forces the economy is facing.

She added that the United States will continue to see a "K-shaped" recovery, as some households suffering from sustained unemployment, childcare burdens, poor schooling, rental arrears, with other factors hindering their post-pandemic prospects.
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