International Monetary Fund cuts U.S. growth forecasts, cites Trump fiscal plan uncertainty

The International Monetary Fund trimmed its forecasts for economic growth in the U.S. cautioning about rising levels of public debt, even as it pointed out that the country was in its third-longest expansion since 1850.

The IMF's assessment casts doubt over a more optimistic forecast in the White House budget proposal, which projects growth will accelerate to 3% by 2020 and keep up that pace for seven more years.

The IMF's updated forecast says the world's largest economy will expand at a 2.1 percent annual rate this year.

Growth surges on the scale Mr 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.

The IMF said the Trump budget plan put a disproportionate share of spending cuts onto low- and middle-income households, adding that it "would appear counter to the budget's goals of promoting safety and prosperity for all Americans".

The IMF's earlier forecasts had assumed the economy would receive a boost from the Trump administration's policies, but it has now dropped those assumptions.

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.

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

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.

However, US officials participating in the discussions agreed with the International Monetary Fund view that uneven growth has created "important social problems" and shared the objective of trying to reverse these trends to achieve a "more even distribution of the gains", Werner said. Meanwhile poverty and income divisions have inhibited demand.

The IMF's forecast is that annual GDP growth of 2.1 percent this year and 2.1 percent next year would slow to 1.9 percent in 2019 and 1.8 percent in 2020. As a result, the fund did not include in its projections the effects of any tax reforms - which the administration has said is a priority but will need congressional approval - or Trump's proposed budget cuts.

In a statement, the Treasury Department said that it appreciated the IMF's support for the administration's broad policy efforts in such areas as boosting infrastructure investment and simplifying the tax system.

The Washington-based global financial institution said the Trump administration "intends a wide-ranging overhaul of policies, although a fully articulated policy plan has yet to emerge".

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

(Copyright © 2015. All Rights Reserved.)
 
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