News Worms
News Worms

IMF cuts US growth forecasts, citing lack of Trump fiscal details

IMF cuts US growth forecasts, citing lack of Trump fiscal details

"We are removing that fiscal stimulus because now we have in front of Congress a budget that assumes an important fiscal consolidation in the next few years", Alejandro Werner, head of the IMF's Western Hemisphere Department, said in a press conference.

Meanwhile the risk of protectionist policies harming worldwide links, while diminished, still represents a big threat to trade and growth, the IMF said.

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

The IMF forecast real GDP to grow at 3.9 percent in 2017, propelled by strong domestic demand. An aging workforce is keeping a lid on labor-market expansion, a growth-sapping dynamic that may be exacerbated by more restrictive immigration policies.

While the current U.S. administration plans to reduce the fiscal deficit and debt, reprioritise public spending and overhaul the tax system, the International Monetary Fund said: "During the Article IV consultation it became evident that many details about these plans are still undecided".

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. These economic changes mean that half of US households have lower incomes now than they did in 2000, and the economy is not doing enough to spread income growth.

The IMF disagreed, questioning whether the package as proposed will deliver the administration's long-term growth targets, balance the budget and cut public debt.

The IMF's annual review of the USA economy says that history would suggest that the growth acceleration projected by the administration is "unlikely".

The U.S. Treasury said in a statement Tuesday, "We appreciate the IMF's support of the administration's broad policy objectives, including the need to stimulate infrastructure investment, simplify the tax system, and boost educational opportunities".

However, the discussions "revealed differences on a range of policies and left open questions as to whether the administration´s proposed policy strategies are best suited to achieve their intended objective". And, it said, Mr. Trump's proposed budget cuts would disproportionately affect the poor and middle class and should be moderated.

The report said such a leap in performance was "unlikely" and pointed to the fact the jobless rate was already at a low level consistent with full employment.

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".


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