Major US stimulus would boost US, global economies: IMF official

Another major US stimulus package would drive a big jump in US growth but also would help boost the pandemic-ravaged global economy, the IMF's chief economist told AFP on Tuesday.

Gita Gopinath said in an interview that a US rescue package on the order of the $2.2 trillion CARES Act approved in March would increase growth in the world's biggest economy by two percentage points next year, over the 3.1 percent GDP rise currently forecast.

The IMF released its latest World Economic Outlook on Tuesday which sees the global economy contracting 4.4 percent this year and rebounding by 5.2 percent in 2021.

The slightly upgraded outlook compared to the dire forecast in June reflects the fact the downturn in the second quarter "was awful but it was the less awful than we expected," she said.

But with the virus still raging, the recovery is slow as sectors that rely on close contact, such as entertainment, hospitality and tourism, continue to struggle.

"The number one factor is ending the health crisis," Gopinath said

But a big jump in the American economy would bring the US back to pre-crisis levels in 2021 rather than 2022, which would have "significant benefits for the world" as well, especially for US neighbors Canada and Mexico.

The comments come as US President Donald Trump's White House remains locked in talks with Democratic leaders over a new rescue package, while Senate Republicans have revolted over the cost of the beefed-up proposal.

The Democratic-controlled lower House approved a $2.2 trillion HEROES Act, which the Senate has not taken up, while Trump last week upped his proposal to $1.8 trillion, which House Speaker Nancy Pelosi called "insufficient."

The total of nearly $3 trillion in government support injected into the US economy in the early weeks of the Covid-19 pandemic kept the recession from being as severe, and the IMF upgraded its forecast for this year to show a decline of 4.3 percent.

Gopinath said the IMF forecasts assume there is no further stimulus, but "if there is an additional round of stimulus which is about the size of the CARES Act, then that will add two percentage points to growth in 2021."

And since the US "is a sizable economy," such a big boost would benefit the global economy with "positive spillovers to trade and also through the financial channels," she said.

- Keep support in place -

Even with the upgrades to the global outlook "we are still in a deep crisis, it's still the worst recession since the Great Depression," and the global economy remains "well below our pre pandemic levels" with damage extending several years into the future.

In presenting the forecasts earlier, Gopinath noted that without the recovery in China, which is forecast to expand by 1.9 percent this year and 8.2 percent next year, the global economy would contract again in 2021.

The IMF official again hammered home the message that governments must continue to provide support to workers and businesses, but cautioned that "the longer this crisis continues, it's going to be harder for governments to provide income support."

"But if we can end the health crisis sooner, and we can continue to provide income support to households, and we can prevent excessive bankruptcies and job destruction, then we can have a somewhat faster recovery."

Latin America was particularly hard hit by the pandemic, and also went into the crisis with high debt levels and weak growth, and like other emerging markets relies to a greater degree on commodities and tourism, she said.

"We see a very gradual recovery in Latin America," and it will take "well into 2023 to get back to just the levels in 2019" for the region's economy.