IMF cuts U.S. outlook, calls growth target unlikely

U.S. economy will have hard time hitting target

The International Monetary Fund cut its outlook for the U.S. economy, removing assumptions of President Donald Trump’s plans to cut taxes and boost infrastructure spending to spur growth.

The IMF reduced its forecast for U.S. growth this year to 2.1 per cent, from 2.3 per cent in the fund’s April update to its world economic outlook. The Washington-based fund also cut its projection for U.S. growth next year to 2.1 per cent, from 2.5 per cent in April.

The world’s biggest economy will probably have a hard time hitting Trump’s target of three per cent annual growth as it’s faced with problems ranging from an aging population to low productivity growth, and with a labour market already back at full employment, the fund said in its annual assessment of the U.S. economy released Tuesday.

The IMF’s assessment casts doubt over a more optimistic forecast in the White House budget proposal, which projects growth will accelerate to three per cent by 2020 and keep up that pace for seven more years. Even with an “ideal constellation of pro-growth policies, the potential growth dividend is likely to be less than that projected in the budget and will take longer to materialize,” the IMF said.

“The U.S. is effectively at full employment,” it said. “For policy changes to be successful in achieving sustained, higher growth they would need to raise the U.S. potential growth path.”

Growth surges on the scale Trump is predicting have been rare in the U.S. and abroad, according to the IMF, which says there are only a few cases of such leaps among advanced economies since the 1980s. Those episodes mostly took place in the mid- to late-1990s, when global demand was strong.

The IMF notes the U.S. has been enjoying “persistently strong” job growth. Growth will slip to 1.9 per cent in 2019 and 1.8 per cent in 2020, according to the fund’s forecasts.