International Monetary Fund cuts United States growth forecasts, citing lack of Trump fiscal details

Jun 28, 2017, 01:21
International Monetary Fund cuts United States growth forecasts, citing lack of Trump fiscal details

President Donald Trump's budget plans will fail to stimulate U.S. growth anywhere near his target, according to the International Monetary Fund (IMF).

The IMF reduced its forecast for US growth this year to 2.1 percent, from 2.3 percent in the fund's April update to its world economic outlook. That would be an improvement over last year's lackluster 1.6 percent growth rate but down from the IMF's April forecast for growth this year of 2.3 percent.

The IMF, after a review of USA economic policy, said the Trump administration was unlikely to achieve its goal of annual GDP growth of 3 percent over a sustained period, partly because the labor market is at a level consistent with full employment.

The global lender also says US job growth is strong and the overall economy is now 12 percent larger than it was before the recession. Even with an "ideal constellation of pro-growth policies, the potential growth dividend is likely to be less than that projected in the budget and will take longer to materialize", the International Monetary Fund said in a statement on Tuesday.

The U.S. economy grew 1.6 percent a year ago.

The IMF said its previous outlook for improved growth was based on Trump's promises to slash taxes and regulation and boost spending on infrastructure to help economic expansion.

The IMF notes the United States is enjoying its third-longest expansion since 1850, with "persistently strong" job growth. Growth will slip to 1.9% in 2019 and 1.8% in 2020, according to the fund's forecasts.

"All in all, in our judgment, the USA economic model is not working as well as it could in generating broadly shared income growth", said Alejandro Werner, head of the IMF's Western Hemisphere department.

"On the other hand, spending reductions could be less ambitious and tax reforms could lower federal revenues, providing stimulus to the economy, raising near-term growth (and possibly potential growth), but with negative implications for debt sustainability and the current account imbalance".

The IMF criticised the White House because of its "still evolving policy plans", and the presumable positive effects of Trump's fiscal stimulus have therefore been removed from the Fund's assessments of the USA economic prospects. "Given these policy uncertainties, the IMF's macroeconomic forecast uses a baseline assumption of unchanged policies".

The IMF again suggested the Federal Reserve should be ready to let price growth modestly overshoot its inflation goal, a move that would "provide valuable insurance against the risks of disinflation and having to bring the federal funds rate back to zero".

The IMF now says the economy will expand by 2.1% this year and next.

Although, the president already has said that the broad principles of this plan would be simplifying taxes, rebuilding roads and bridges, and lowering government spending.

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