IMF cuts US growth forecast, warns of growing risks
WASHINGTON: The International Monetary Fund cut its US growth forecast significantly for 2019 but said the United States is still likely to outpace other advanced nations as the world economy slows.
The global crisis lender also warned of hazards on the horizon, especially the continued trade tensions with China and other countries, as well as mounting corporate debts and the delicate challenges facing the central bank in coming months.
In the latest World Economic Outlook, the IMF portrayed the United States as an exception to the current slowing trend among rich nations – with strong consumer demand, robust labour markets and higher industrial output than its rivals.
The world’s largest economy is now expected to expand at a 2.3 per cent clip this year, down from the 2.5 per cent expected in January, but still relatively strong, according to the report released ahead of this week’s spring meetings of the IMF and World Bank.
US growth is projected to slow further to 1.9 per cent in 2020, slightly higher than forecast in January, boosted by the Federal Reserve’s indications it will not raise interest rates for the foreseeable future.
“There has been a pivot with the Fed, with a pause in the expectation of rate rise in 2019,” IMF chief economist Gita Gopinath told reporters.
That move was welcome as it has offset “some of the downside risks that were building up towards the end of 2018,” she said.
However, she added, “If we do have the recovery that we are projecting by 2020, that could change policy stance.”
The stimulus provided by US tax cuts last year is fading, while the extended government shutdown also took a bite out of growth in 2019.
The IMF outlook assumes that the current truce in the US-China trade war will persist and lead to a more permanent agreement. But if the dispute flares up or spreads to autos, that could erode business sentiment and slow growth, the report warned.
As US domestic demand continues to support higher imports and the budget deficit balloons, the trade deficit could swell further, “which could aggravate trade tensions,” the report said.
A “durable resolution of trade uncertainty” created by the US and China would be “very positive for global growth,” Gopinath said at a news briefing, also warning against expanding the dispute to more sectors.
The IMF also warned that corporate debt was increasingly risky, with bond investors and others lending to a growing number of low- rated issuers or borrowers who offered little protection in the event of a default.