The economy of the United States grew faster than any other major advanced economy last year – by a wide margin – and is on track to repeat the feat in 2024.
On Friday (2), the Department of Labor reported that the market added 350,000 new jobs last month and that unemployment in the country remains stable at a rate of 3.7%. Encouraging data that shows a robust economy and begins to dispel the pessimistic views of some about a possible recession.
The U.S. GDP grew 2.5% in 2023, according to the IMF’s World Economic Outlook report, the highest among G7 economies (Japan came in second with 1.9%). IMF economists forecast similar growth this year, around 2.1%.
All countries faced the same post-pandemic inflation problems and high interest rates aimed at combating it. But the U.S. managed to achieve solid growth despite these headwinds.
The superior performance of the Americans is rooted in their structural strength, policy choices, and some luck. It reflects a fundamental resilience of the world’s largest economy.
Two factors stand out:
(1) The strong growth of the U.S. labor force – as more Americans choose to enter the labor market and immigration increases.
(2) The U.S. also recorded strong productivity growth fueled by an innovative business sector and significant federal investments in infrastructure and production capacity.
The U.S. response to the pandemic also made a difference. During this period, more Americans migrated to higher productivity jobs.
“The huge labor market upheaval caused by COVID in 2020-21 had the unintended benefit of moving millions of lower-wage workers into better jobs, more income security, and/or to manage their own businesses,” said Adam Posen, president of the Peterson Institute for International Economics, to Axios.
“We are reaping the benefits of this now in the greater participation in the labor force, wage growth, and improved productivity,” which has been “very different from Europe and Japan, where most workers remained tied to their pre-COVID jobs,” he added.
But the good performance of the U.S. compared to the rest of the world is not solely the country’s merit. Other major economies have specific problems that are hindering their growth.
Japan, for example, has a shrinking population and low immigration rates, which means that even when its economy is doing well, growth is lower than that of the U.S.
The United Kingdom is still dealing with supply disruptions triggered by its exit from the European Union.
The major European economies rely on oil and natural gas from Russia, and the war of this nation with Ukraine is raising energy costs that affect manufacturers in Germany and other countries.
In any case, IMF economists forecast better outcomes, both in terms of inflation and growth, compared to just a few months ago, for the world’s major economies.
Why is this important? It seems that the world has survived the great inflation shock better than many predicted.
Source: Axios