U.S. News
Solid 2.4% GDP Growth Cools Recession Fears: Ex-IMF Chief
By Mara Lafontaine · July 28, 2023
In brief…
- The Bureau of Economic Analysis reported a 2.4% increase in the real GDP in the second quarter of 2023.
- Noted economist John Lipsky said "2.4% real growth is not a recession."
- Lipsky, former Acting head of the IMF declared said, "a high profit, high margin economy has survived the pandemic."
- He foresees the digital revolution significantly raising productivity.
U.S. gross domestic product increased at a respectable rate of 2.4% in the second quarter of 2023, according to The Bureau of Economic Analysis.
“You can draw your own conclusions, but obviously, 2.4% real growth is not a recession,” declared John Lipsky, former Acting Managing Director of the International Monetary Fund, told CNN.
Lipsky holds an optimistic view, explaining, “It looks like we could be on the edge of a new phase of progress in the so-called digital revolution that could have a real impact on productivity. I think increasingly investors are optimistic that growth will be sustained and inflation will come down relatively rapidly, obviating the need for future Fed tightening.”
The notion that the inflation rate will be inversely related to the unemployment rate, Lipsky argued, is not appropriate for the current market. “Those earlier calculations were for a much less competitive market than we have today. And for some time, the linkage between unemployment, wages and inflation hasn’t been anywhere near what it has been in the past. Much looser reaction. But I think you put your finger on what’s new this time, and that’s the pandemic,” he said.
Lipsky, currently a Distinguished Fellow at Johns Hopkins School of Advanced International Studies, explained that the pandemic initially created a shutdown that restricted supply in the service sector and put demand on goods, producing bottlenecks that consequently created inflation in the goods sector. The subsequent reopening of the economy then produced high demand in the service sector leading to high prices. “But all that seems to be fading - and fading rapidly,” he said.
“The most salient point here is that since the turn of the century profit margins and profit share of GDP has been much higher than it was previously - and that has been sustained,” Lipsky noted. “What the latest data seem to [show] is that effect - that a high profit, high margin economy has survived the pandemic.”