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News January 26, 2021

IMF Hikes Forecast for US Economic Growth in 2021

Plus, separate studies show that Americans have increased savings, which could help drive greater GDP recovery as 2021 progresses – a boon for the promotional products industry.

By  Christopher Ruvo

An improved forecast for economic growth from the International Monetary Fund (IMF) and other data that suggests Americans have stored away stimulus money in savings and are ready to spend has brightened the economic picture for 2021 in the United States.

Gita Gopinath

Gita Gopinath, chief economist, IMF

While America continues to fight the COVID-19 pandemic and significant uncertainty remains, the hope raised by vaccinations and improved coronavirus treatments contributed to the IMF’s just-released prediction that the U.S. economy will grow by 5.1% this year compared to last year. That’s better than the 3.5% growth that the IMF had predicted in October 2020.

The IMF, a Washington, D.C.-based international organization that works to foster global monetary cooperation and secure financial stability, further forecasts that worldwide economic growth will reach 5.5%. Still, the recovery will be uneven, with much depending on expedience of the COVID vaccination rollout and the efficacy of the vaccines.

The IMF’s improved forecast comes as The Wall Street Journal reports that data shows that, thanks in significant part to stimulus checks from the federal government, Americans have increased savings – money that could be used to help catalyze economic recovery later in 2021.

According to Berenberg Economics, Americans saved $1.4 trillion in the first three quarters of 2020, or about twice as much as during the same time frame in 2019, WSJ reported. Berenberg noted that equates to about 10% of 2019 household spending.

Meanwhile, the Federal Reserve Bank of New York performed an analysis that determined that U.S. consumers stored more than a third of their first stimulus checks, which began going out last spring. Some 36% of the payments were saved, 29% spent and 35% used to pay off debt. The survey also found that consumers expected to spend an even smaller percentage of subsequent stimulus payments, while using a larger amount to address personal debt, the WSJ said.

Notably, the Commerce Department reported that the percentage of after-tax income that Americans saved was 12.9% in November 2020, up from 7.5% in the same month the year prior.

“In this unusual recession, governments have been unusually generous, people have not been able to spend the money, and hence they have the money and will to spend,” Holger Schmieding, chief economist for Berenberg, told the Journal. After restrictions lift and people begin to circulate regularly in society again, “there will be a lot of spending — my guess is the beaches will be crowded, the pubs will be crowded” and, “by May and June it will be in full swing,” Schmieding said.

IMF reports that the U.S. economy contracted by 3.4% in 2020. Last year, promotional products distributors’ sales declined, on average, by 19.8%, a drop that would have been far worse if not for the industry’s pivot to selling personal protective equipment.