America remains ahead of the world’s advanced economies, with a surge of investments boosting productivity and wages.
Despite its financial instability, the United States is powering through, as confirmed by the International Monetary Fund (IMF) in its latest report. The IMF upgraded the U.S. economic outlook again, commending its massive growth, especially when compared to other wealthy nations.
The economy is expected to grow 2.5% in the last quarter of 2024, faster than the IMF’s July forecast of 2%. That places America well ahead of the Group of Seven (G7) countries in terms of growth.
In 2023, the U.S. saw its output rise by 3.2%, while other advanced economies barely managed to keep pace. Global growth is projected at 3.3% for 2024, but the real story is in the wealthy nations, where America’s dominance continues to expand.
Advanced economies as a group are only expected to grow by 1.9%, falling behind the U.S. For 2025, the IMF expects America to grow by 1.9%, again outpacing the 1.7% projected for other advanced economies. Even China, the world’s second-largest economy, is expected to post just 4.5% growth in 2024.
Investment surge fueling U.S. growth
The boost in America’s economic outlook is primarily due to a surge in nonresidential investments and stronger consumer spending. As productivity increases, real wages follow.
Companies that operate more efficiently tend to pay their workers more, and that’s exactly what’s happening in the U.S. right now. Money is pouring into the American market from investors, and it’s having a direct impact on productivity.
IMF data shows gross fixed capital formation, a key measure of investment, is expected to jump by 4.5% this year. That’s more than three times the rate of all advanced economies.
Between 2016 and 2025, U.S. investment is expected to grow by an average of 3.3% each year, far above the 2.3% average for other developed economies. In stark contrast, investment spending in Germany is projected to fall by 2.7% this year, a further decline from its 1.2% drop in 2023.
America, meanwhile, has also managed to shield itself from the worst of the global energy crisis, thanks to its abundant domestic energy supplies.
Energy independence driving productivity
Energy is another major factor behind America’s surge. In the 2010s, new technologies like fracking allowed the U.S. to ramp up domestic energy production.
This increased energy output boosted productivity and insulated the country from global energy shocks. By 2020, America had become a net exporter of petroleum, a major milestone.
Russia-Ukraine conflict in 2022 sent energy prices soaring worldwide, but the U.S. didn’t feel the hit nearly as hard as Europe.
While companies in the European Union are paying two to three times more for electricity than their U.S. counterparts, and four to five times more for natural gas, America has managed to keep energy costs under control.
According to a report from the European Commission, this energy cost disparity has severely affected European companies, making it harder for them to invest in productivity-boosting technologies.
Economists argue that energy independence and productivity growth are closely linked. The money that European companies are now forced to spend on energy could have been used to upgrade factories or invest in new software.
The IMF backed this up, noting that productivity gains among big U.S. companies are one of the primary reasons its economy has pulled so far ahead of Europe.
But America’s financial instability is still a significant issue. Right now, the federal budget deficit reached $1.833 trillion, the third-largest deficit in U.S. history.
This is just below the deficits recorded during the COVID-19 pandemic, which saw the deficit balloon to $3.132 trillion in 2020 and $2.772 trillion in 2021.
Government spending in 2024 hit $6.751 trillion, making it the second-highest total in history. Despite record-high tax collections of nearly $4.919 trillion, the gap between revenue and expenditure continues to grow.
The government paid $882 billion in net interest on its debt, with gross interest payments surpassing $1 trillion for the first time ever. The national debt now stands at a staggering $35.465 trillion. Of that, $28.1 trillion is held by the public.
Source: https://www.cryptopolitan.com/america-leading-world-economically-imf/