IMF Trims Economic Forecast for US Amid Growth Uncertainty

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Kristian Rouz - The International Monetary Fund (IMF) cut its outlook on the U.S. economic expansion for this year and 2018, saying that President Donald Trump's target growth of 3 percent per year is not realistic given the current circumstances.

The assumed stimulus from expected tax cuts and new federal spending spurred the International Monetary Fund earlier this year to bump up its US growth forecasts to 2.3 percent in 2017 and 2.5 percent in 2018.

Growth was revised down to 2.1 per cent from 2.3 per cent this year and to 2.1 per cent from 2.5 per cent next year.

"The global experience and USA history would suggest that a sustained acceleration in annual growth of more than 1 percentage points, as projected by the administration, is unlikely", the report said.

International Monetary Fund officials said the details of the Trump administration's economic policies appear undecided.

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The IMF in January raised the estimates on the expectation of fiscal stimulus from the Trump administration, but have reverted back to the previous calculations - which project the economy to expand by 2.1 per cent in 2017 and 2018, down from 2.3 per cent and 2.5 per cent, respectively.

Meanwhile, buoyant stock prices, one of the longest expansions in USA history and a precrisis jobless rate belie an economy facing considerable challenges ahead, the fund warned. These economic changes mean that half of USA households have lower incomes now than they did in 2000, and the economy is not doing enough to spread income growth.

"A comprehensive policy package is needed", the report said.

Any increase in spending could boost growth, but Trump would be forced to get spending hikes past the ultra-conservative wing of the Republicans, who have already balked at measures which would increase the fiscal deficit. Meanwhile poverty and income divisions have inhibited demand.

The US is enjoying its third longest economic expansion since 1850. Growth will slip to 1.9% in 2019 and 1.8% in 2020, according to the fund's forecasts.

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"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".

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

Nevertheless, it summed up the situation by saying that "the USA economic model is not working as well as it could in generating broadly shared income growth".

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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