25/06/2024 - The United States economy has continued its robust recovery since the COVID-19 pandemic, increasing wages and drawing people into the labour market despite the significant tightening in monetary policy that has helped to bring elevated inflation down, according to the latest OECD Economic Survey of the United States.
The OECD projects GDP growth to edge up from 2.5% in 2023 to 2.6% in 2024 before slowing to 1.8% in 2025. Growth will be supported by consumer spending, continued strength in the labour market, and eventually by monetary policy easing. Core inflation is expected to decline from 4.1% in 2023 to 2.6% in 2024 and further to 2.1% in 2025, as wage growth and housing inflation slow.
General government debt increased to 122% of GDP in 2023, its highest level since World War II and the fourth highest in the OECD. The debt-to-GDP ratio is expected to continue rising markedly over the coming decades under current tax and spending policies. This is due to a growing mismatch between spending on the provision of public services, social insurance and infrastructure, and a narrowing of the tax base through tax cuts.
"The United States 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% target," OECD Secretary-General Mathias Cormann said, presenting the Survey in Washington, D.C. alongside Chair of the White House Council of Economic Advisers Jared Bernstein. "This strong recovery creates a good opportunity to start narrowing the budget deficit and put debt on a more prudent path. Fiscal consolidation should start in the fiscal year 2025 as growth has proven resilient, with a mix of measures on the spending and revenue side. It should be coupled with productivity-enhancing reforms that promote competition, including through maintaining international trade openness, and with reforms to increase the labour force by helping women participate fully in the labour market."
Achieving fiscal sustainability would make the economy less vulnerable to future economic shocks and ensure that key roles of government are maintained. A steady multi-year fiscal adjustment that includes spending adjustments, notably achieving savings on pensions and healthcare, and increases in taxation, particularly on capital incomes, would put high government debt on a more prudent path. Replacing the debt ceiling with a simple medium-term debt ratio target would be simpler than existing legislative budget rules and would provide more clarity for public budgeting.
Competition in some parts of the economy has weakened, making it all the more important for the United States to maintain and strengthen open investment and trade policies. In addition, productivity growth will benefit from adjustments to education and immigration policies that ensure an adequate supply of highly skilled workers. These could include expanding tailored measures to accelerate the learning of disadvantaged students.
The Survey shows that there has been a major acceleration in efforts to achieve the climate goals of the United States, including achieving net zero emissions by 2050. These measures should be implemented. However, additional policies will likely be needed to achieve climate objectives and should involve a well-balanced policy mix that includes carbon pricing, sectoral regulations and subsidies.
