IMF cuts US growth outlook

28 June, 2017, 02:45 | Author: Elaine Woods
  • The IMF is not as certain that growth will accelerate under the tax and fiscal policies of US President Donald Trump

Growth surges on the scale Trump is predicting have been rare in the United States and overseas, according to the International Monetary Fund, which says there are only a few cases of such leaps among advanced economies since the 1980s. By 2020, Trump says, his economic planning will push annualised GDP growth above the 3 percent threshold, and this economic prosperity will last for seven more years.

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.

Meanwhile, buoyant stock prices, one of the longest expansions in US history and a precrisis jobless rate belie an economy facing considerable challenges ahead, the fund warned.

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

The global financial institution also said that calls for protectionism and economic nationalism by U.S. authorities cast medium-term shadows on the economy and "a broader retreat from cross-border integration would represent a downside risk to trade, sentiment and growth".

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.

The US dollar's overvaluation, which the Fund pegged at between 10% and 20%, would also be reduced as a result, with positive "spill-over" effects on other countries.

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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.

Elsewhere, the International Monetary Fund said the U.S. tax system was in need of fundamental reform and radical simplification.

The fund backs an overhaul of the US tax code, cutting corporate taxes, and getting rid of exemptions. But the fund says the administration's plan doesn't add up.

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 goal". The IMF also suggests increased petrol taxes and greenhouse emissions, a new consumption tax on the federal level and keeping Obamacare in place.

The report also warned against measures that would make the USA less open to trade, even while there is room to modernise pacts like the North American Free Trade Agreement (NAFTA), a process Washington already has begun.

"The U.S. ought to be judicious in its use of import restrictions on national security grounds and avoid measures that inadvertently weaken, rather than strengthen, the overall economy", it said.

Inflation was expected to stabilize at just below 2 percent.

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