The pace of GDP growth is anticipated to weaken from its recent very high levels to 2.5% in 2022 and 1.2% in 2023. Supply disruptions may take some time to fully ease, especially given the impacts of the war in Ukraine and COVID-related lockdowns in China. Wage growth will stay strong, as the labour market is expected to remain tight, despite an increase in labour force participation as receding health risks and higher wages prompt workers to return to the labour force. Inflation will remain above the Federal Reserve’s 2% target at the end of 2023.
The pandemic risks exacerbating the existing inequalities among social, ethnic and racial groups. The government cushioned the impact on vulnerable households, especially by providing cash transfers and expanding unemployment benefits. Nonetheless, a key policy priority should be to further improve the opportunities for the most vulnerable. Enhancing education, training and green infrastructure investment would contribute to more sustainable, resilient and equitable growth.
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2021 Structural Reform Priorities
The longest expansion on record came to a juddering halt with the worldwide spread of the coronavirus. The containment measures introduced have contributed to the economy suffering one of the largest shocks outside wartime and leading to extremely high unemployment. A rapid and substantial policy response has aimed to shield households and businesses from the worst of this shock. As the economy re-emerges from the shutdown pressures on public finances will be intensified, but policy support should remain available while the economy is operating well below capacity. Sanitary measures remaining in place until the coronavirus is eliminated will weaken an already sluggish productivity growth and population ageing will continue constraining the available labour supply. The government should therefore continue to focus on structural reforms liberalising productive forces, especially by removing regulatory barriers that stand in the way of boosting productivity. Helping Americans go back into employment and acquire the skills needed to take advantage of new job opportunities will also support the return of the high levels of prosperity American’s have enjoyed in the past.