US economy growing steadily!
...but key reforms needed, OECD says
The US economy is making one of the strongest comebacks in the OECD, but there are risks on the horizon, according to the OECD’s latest Economic Survey of the United States.
Seven years after the financial crisis, the US economy has rebounded through robust monetary policy support and the well-timed expansion of fiscal policy. Output has surpassed its pre-crisis peak by 10%, robust private-sector employment gains have sharply reduced unemployment, and fiscal sustainability has been largely restored. But key reforms are necessary to sustain the recovery.
“It’s a recovery, but it’s a stubborn recovery,” OECD Secretary-General Angel Gurría said during the Survey launch in Washington, D.C. with Jason Furman, Chairman of the Council of Economic Advisors. “In so many ways, the US economy is a role model for other OECD countries, but by America’s own high standards the recovery has been mild and risks losing momentum. There is a clear need to rebalance the policy mix and implement mutually reinforcing policies that boost productivity, reduce inequality, and promote sustainable growth.”
The slow speed of the recovery reflects the severity and depth of the financial crisis, fiscal consolidation, the exit of baby boomers from the labour market, weaknesses in key OECD economies, and world trade stagnation induced by the slowdown of China. A broader concern is weakening business sector dynamism.
New firms aren’t being created as frequently as in the past and larger firms are increasingly dominating markets. The Survey recommends adapting antitrust policy to keep pace with digitalisation, financial innovation, and globalisation to address these issues. Shortfalls in public infrastructure must also be remedied.
Economic activity is, on average, well above pre-crisis peaks, but the revival does not prevail everywhere and is not as widely shared as it could be. The Survey notes that income inequalities can be addressed by ensuring that people acquire the skills they need and do not face discrimination or other obstacles in the labour market.
It also encourages policies to improve opportunities for women, ethnic and racial minorities, disabled persons, and people with criminal records. According to the Survey, private sector job creation has been one of the most welcome aspects of the recovery. The housing market is also improving, with residential house prices in some parts of the country above pre-crisis levels.
Looking ahead, the Survey identifies environmental sustainability as an overarching challenge. The US performs relatively poorly compared to the rest of the OECD on CO2 emissions reductions despite the strengthening of fuel economy standards and significant use of policies and incentives for renewable energy and energy efficiency at the State level. The Survey notes that further measures to abate climate change should include putting a price on carbon dioxide emissions.