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

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

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

The International Monetary Fund on Tuesday cut its growth forecasts for the USA economy to 2.1 percent for both 2017 and 2018, dropping its assumption that President Donald Trump's tax cut and fiscal spending plans would boost growth.

The IMF forecasts that the US economy will grow this year at an annual rate of 2.1 percent. The Washington-based fund also cut its projection for USA growth next year to 2.1 percent, from 2.5 percent in April.

Moreover, IMF leaders say it would be challenging to boost growth to 3% with the USA job market already at full employment, along with a large share of baby boomers retiring and slow gains in productivity.

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. 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.

The assumptions for those forecasts appeared to have evaporated in the face of a lack of details over the Trump tax plan and the $3.6 trillion in government spending cuts proposed in the administration's budget plan in late May.

On a more positive note, the International Monetary Fund noted how GDP was 12% higher than its pre-recession peak with job growth persistently strong and, despite, measurement uncertainties, the U.S. economy "appears to be back at full employment".

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 fund backs an overhaul of the US tax code, cutting corporate taxes, and getting rid of exemptions.

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 report warned against measures that would make the United States less open to trade, even while there is room to modernise pacts like the North American Free Trade Agreement, a process Washington has already 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. Many economists, including those at the Federal Reserve, expect growth of around 2% for the next few years.