U.S. economic growth would reach as much as 4 percent if it weren’t held back by an underperforming government sector, said David Lipton, the First Deputy Managing Director of the International Monetary Fund.
“The private sector is actually recovering really strongly,” Lipton said today in a speech in Pretoria, South Africa’s capital. “The public sector is providing some drag on growth. Right now the growth rate is 2, but it would be much higher -- 3, maybe 3.5 or 4 -- if there wasn’t this drag from the public sector.”
Low interest rates and several rounds of debt purchases by the Federal Reserve, known as quantitative easing, have helped maintain growth in the U.S. economy and have been good for global growth, Lipton said.
The Federal Open Market Committee said last week will keep buying $85 billion in bonds each month, expanding its balance sheet to help spur economic growth and bolster employment. The world’s biggest economy expanded at a 2.5 percent annualized rate in the first quarter, trailing the 3 percent gain that was the median estimate of 86 economists surveyed by Bloomberg.
“There’s probably limited ability for monetary policy to spur the economy further, but it’s played a very positive role,” Lipton said.
The European Union needs to fix flaws in its banking “architecture” and should introduce a banking insurance fund for the whole region, he said. The IMF doesn’t see Europe returning to economic growth before late this year, Lipton said.
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