IMF trims economic forecast for US amid growth uncertainty

Posted June 28, 2017

"The US is effectively at full employment", said the fund.

But after talks with administration officials amid still-evolving policy plans, the fund says it can no longer factor such fiscal stimulus into its forecasts.

The IMF forecast real GDP to grow at 3.9 percent in 2017, propelled by strong domestic demand.

The IMF warned that "significant policy uncertainties imply larger-than-usual" risks to the USA outlook on either side, since spending cuts could lower growth, while tax cuts could provide stimulus and expand the economy.

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The IMF said they are expecting the USA economy to grow by 2.1 percent this year, compared to an earlier projection of 2.3 percent made in April.

A solution to these challenges would be the Trump=proposed fiscal stimulus, the Fund admits, but it is taking the White House too long to actually deliver on their fiscal programme promises.

Global experience and U.S. history show only a few examples of economies achieving growth of that magnitude, and usually it was after a recession when unemployment was high, he told reporters. The Trump administration is counting on planned tax cuts, increased infrastructure spending and regulatory relief to boost expansion while balancing the budget. 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.

Instead, the fund forecasts the growth rate will steadily fall over the next five years to around 1.7%, assuming no major policy changes.

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The IMF also trimmed growth for next year and said that the economy would have a hard time achieving the 3 percent growth goal set in the president's first budget. As a result, the fund did not include in its projections the effects of any tax reforms - which the administration has said is a priority but will need congressional approval - or Trump's proposed budget cuts. Public finances were projected to improve further, allowing the government to attain its Medium-Term Objective of a structural deficit of 0.5 percent of GDP next year, the International Monetary Fund said.

Alejandro Werner, director of the IMF Western hemisphere department, said the downward revision "in large part reflects the uncertainty about the nature of the macroeconomic policies that will be put in place in the coming months".

A Treasury spokesperson said "we appreciate the IMF's support of the administration's broad policy objectives" as it aims to create policies to boost USA and global economic growth. "Most critically, relative to historical performance, post-crisis growth has been too low and too unequal".

To address these shortcomings, and given the phase of the economic cycle, the IMF advised the United States should gradually remove fiscal and monetary support and focus on raising its potential for growth, increasing competitiveness and strengthening the supply side of the economy.

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The IMF said the Trump administration's latest budget plans would place a disproportionate share of spending cuts onto low- and middle-income households.