IMF cuts US growth outlook amid absent policies

WASHINGTON: The lack of details on President Donald Trump’s plans to reform the US economy prompted the International Monetary Fund to cut its growth forecast for this year and next.

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 will expand by 2.1 per cent in 2017 and 2018, down from 2.3 per cent and 2.5 per cent, respectively.

During the annual discussions with US officials on the outlook for the economy, “it became evident that many details about these plans are still undecided,” the IMF said of the administration’s planned reforms in the so- called Article IV report.

The fund’s economists previously had factored in spending stimulus equivalent to two per cent of the economy from 2017 to 2019, but that was removed.

The IMF warned that “significant policy uncertainties imply larger-than- usual” risks to the US forecasts on either side, since spending cuts could lower growth, while tax cuts could provide stimulus and expand the economy.

Even while the United States is seeing its third longest expansion since 1850 and is at full employment, the world’s largest economy is facing rising public debt and an overvalued currency – which tends to hinder exports.

“A comprehensive policy package is needed” to respond to those challenges, the report said.

The fund welcomed the administration’s objectives to bring down debt and adjust spending policies “to finance priorities such as infrastructure.”

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 purpose.”

In fact, the IMF called into question the stated goal of the Trump administration to accelerate growth to more than three per cent.

“It is unlikely this set of policies can generate an acceleration in growth of one percentage point,” said Alejandro Werner, director of the IMF’s Western Hemisphere Department.