IMF's Blanchard Sees Weak Recovery, Unemployment Falling Slowly
High unemployment in the U.S., Europe and elsewhere likely will linger for months, and governments that can afford to use fiscal stimulus should use it to spur growth, the International Monetary Fund’s chief economist said.
“The recovery in the best of cases is not going to be a very strong one over the next six months or a year,” Olivier Blanchard said in an interview with Bloomberg Television today. Joblessness will decrease “relatively slowly in the U.S., maybe faster in Europe but it’s going to be there for a long time,” he said.
The global economic recovery is proving slower than projected and policy makers may need to extend or bolster stimulus programs to support it, the Organization for Economic Cooperation and Development said today. Recent data suggest the economies of the Group of Seven nations could grow at an annual rate of about 1.5 percent in the second half, less than 1.7 percent previously forecast, it said in a report.
Blanchard, whose department will release revised growth forecasts next month, said the first step is for governments to “have a credible fiscal plan” on how they are going to control debt. Then they should take measures to buoy the economy, including some to help the unemployed, he said.
“The key to reduce unemployment is to have faster growth, faster growth output, faster demand,” he said. “Have we used all the tools in the arsenal to do this? I don’t think so.”
The U.S. this week announced more plans to boost growth. President Barack Obama is asking Congress to take up proposals to spend $50 billion to rebuild the U.S. transportation infrastructure, permanently extend a research-and-development tax credit and let businesses deduct the full cost of capital investments in the year the expenditures are made, instead of writing them off over periods of as long as 20 years.
“We’re looking still at the details of the package,” Caroline Atkinson, the IMF’s director of external relations, told reporters at a briefing in Washington today. It “certainly has the potential to boost investment and job creation.”
Blanchard said he doesn’t expect to see a “double-dip,” though “it would make sense to think about new measures” if the economy deteriorated, he said. He also said he’s less concerned than before about the banking industry, though it’s “still not in great shape,” with tight lending hurting small companies and preventing hiring.