U.S. economy on track for biggest growth

ever,” predicted Allen Sinai, chief economist at Decision Economics.

“I don’t even think an attempt at impeachment would stop the underlying fundamentals of the U.S. and non-U.S. economies of giving us good results.”

In an attempt to boost growth, Trump passed massive tax cuts, scaled back regulations and boosted government spending in his first year in office.

The result is a large-scale stimulus that appears to be causing growth to rise but at a cost: Trump has also triggered an unprecedented expansion of the deficit.

“The U.S. economy is projected to grow considerably faster than potential for a few years,” the International Monetary Fund wrote in its World Economic Outlook released Tuesday.

But “the U.S. tax reform will reduce growth momentum starting in 2020.”

The IMF predicts U.S. growth will hit 2.9 per cent this year and 2.7 per cent in 2019, a level that hasn’t been achieved since 2006. But the IMF also predicts the U.S. will be the only advanced economy in the world to have its debt-to-GDP ratio get worse in the next five years as government budgets become even more unbalanced, adding to the debt.

“Given the increased fiscal deficit, which will require adjustment down the road, Donald Trump, who says the U.S. needs to stop outsourcing jobs outside the country, passed huge tax cuts and boosted government spending in his first year in office. and the temporary nature of some (tax) provisions, growth is expected to be lower than in previous forecasts for a few years from 2022 onward, offsetting some of the earlier growth gains,” the IMF warned Tuesday.

The current expansion, which hasn’t necessarily felt record-breaking for many Americans, has been a long but slow recovery from the Great Recession that struck a decade ago. Growth has averaged about two per cent a year, far slower than the 3.6-per-cent annual average during the 1990s expansion, and wages have grown well below the usual pace in good economic times.

Trump called growth during former president Barack Obama’s tenure weak and insisted he could make it better, while Democrats counter that Obama had the tough task of lifting the nation out of a deep crisis that saw unemployment hit the worst level in a quarter century.

The consensus among the world’s top economic forecasters is that the U.S. is in for good times through 2019 or even 2020, but that will likely be followed by an economic hangover of sorts.

Not only is growth expected to slow down, but it could end up being weaker than it would have been without all the stimulus because the U.S. government will have a harder time spending any more money to try to aid the economy, and the large debt that already exists will cause investors to buy U.S. Treasurys instead of investing in the private sector where it would be more likely to boost growth.

“There’s less reason to behave like it’s ‘morning in America’ than ‘happy hour in America,’” wrote Morgan Stanley in a paper Tuesday.

“The feel-good aspects of (fiscal stimulus) appear at or nearly in the price of U.S. markets, whereas the downsides are less accounted for.”

Debt held by the public is on track to climb more than US$4 trillion during Trump’s first term, according to the latest projections from the non-partisan Congressional Budget Office, largely because of the tax bill and additional federal spending.

Under Obama, debt held by the public rose more than US$7 trillion, largely due to additional government spending to try to get growth and hiring going again after the recession.

Trump administration officials argue the experts are wrong and that faster growth will cause American families and businesses to spend and invest even more, which in turn will propel more growth and prosperity.

“We’re in early stages of an economic boom here in the United States,” Larry Kudlow, Trump’s top economic adviser, told reporters Tuesday.

While many economists agree with the administration that the short-term picture looks promising, they don’t believe it will last. CBO anticipates growth slipping back to 1.8 per cent by 2020, while the Federal Reserve forecasts 2 per cent by 2020.

There’s growing concern that wages and inflation are rising, partly because of the good economy and partly because of the stimulus causing even hotter growth, and that will end up causing problems for the economy in the coming years as the Fed has to react with higher interest rates.

But the deeper problem may be a prevailing view that while the economy is better, this is as good as it gets. When people have the mentality that the good times won’t last for long, they might be less inclined to spend after all.