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

Jon Howard
June 28, 2017

The IMF said that the "extremely optimistic" growth envisaged was "unlikely", even if the White House pushed through sweeping tax cuts and a huge boost to infrastructure spending.

The IMF warned of "significant uncertainties" regarding fiscal consolidation, infrastructure investment, renegotiation of trade treaties and immigration policy as some of the factors in the more cautious forecast for the USA economy.

Today's Article IV report, the first on the USA economy since Donald Trump came to power in January this year, noted that the American economy is enjoying its third longest expansion since 1850.

Trump, a Republican, campaigned past year on a pledge to swiftly cut taxes, roll back regulations and lift infrastructure spending, prompting many economists and investors to increase their USA growth forecasts. The world's biggest economy is being held back by problems ranging from an aging population to low productivity growth, the fund said in its annual assessment of the USA economy released Tuesday.

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

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

The IMF called for policies to raise the potential growth rate of the United States economy, including through investments in improved education and training programs, and policies to provide incentives to work, such as an earned-income tax credit.

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The IMF notes the USA is enjoying its third-longest expansion since 1850, with "persistently strong" job growth. Meanwhile poverty and income divisions have inhibited demand.

Instead, the fund forecasts the growth rate will steadily fall over the next five years to around 1.7%, assuming no major policy changes. This is ultimately the result of the president's tax reform agenda, which now is up the in the air.

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

"The US economic model is not working as well as it could in generating broadly shared income growth", Werner said during a press conference. "Most critically, relative to historical performance, post-crisis growth has been too low and too unequal". And, it said, Mr. Trump's proposed budget cuts would disproportionately affect the poor and middle class and should be moderated. The IMF also suggests increased petrol taxes and greenhouse emissions, a new consumption tax on the federal level and keeping Obamacare in place.

The IMF report also weighed in on the healthcare debate consuming Washington, where Republican legislators are developing plans to repeal legislation brought in under former USA president Barack Obama.

But the country is having trouble adjusting to the challenges produced by technology and demographic changes, the International Monetary Fund said.

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