The possibility of a repeat of the coronavirus outbreak is a significant risk to the American economy, according to a report by the International Monetary Fund following its annual visit to the country by article 4 of the IMF’s Charter.
“The main risk, which is very difficult to determine in numerical terms, is that a repeated increase in the number of COVID-19 cases in the US could lead to new partial work stoppages to save lives, especially for vulnerable populations… There are already vital worrying signs that the depth of the economic downturn and the distribution of economic losses by sector will lead to a systemic increase in poverty, which will add to the macroeconomic risks,” the document says.
It notes that even though the cautious approach of the authorities to the resumption of the economy smoothes the risks, the increase in the number of infections in some states has recently led to a repeated shutdown. This development will also lead to lower tax revenues to state and local budgets, which this year and next may create difficulties on the ground, especially for the poor, the report says.
“The historical volume of fiscal packages (support) combined with a lower level of nominal GDP will lead to a significant jump in the ratio of American debt to GDP. Low-interest rates will give some breathing space, but when the economy is more firmly on its feet, the main structural balance will need to lead to moderate growth to stabilize the debt situation,” the document says.
According to its authors, to do this, the authorities will have to make “difficult political decisions” to increase revenues and reduce expenditures, including by introducing new or raising existing taxes.
“Measures must be taken to roll back existing trade restrictions and tariff increases while working with partner countries on issues that disrupt trade flows and investment decisions,” the IMF said.