US growth forecast slashed to 1.6%
THE International Monetary Fund has slashed its forecast for the world’s largest economy, saying the United States has lost some of the momentum that has anchored global growth the last few years.
The global crisis lender predicted the US economy would expand by just 1.6 percent this year, compared to its July estimate of 2.2pc and one percentage point below 2015’s pace.
The slower than expected activity is a result of the ongoing oil industry slump, depressed business investment and a persistent surplus in business inventories, it said.
But also underpinning the turgid pace of activity, the IMF said, is uncertainty over the looming presidential election, which pits Democrat Hillary Clinton against her unpredictable rival, Republican Donald Trump.
With the US economy expected to remain at a sluggish pace, the IMF held its growth forecast for the entire world economy this year unchanged at a troublingly slow pace of 3.1pc.
“Softer than expected activity in the second half of 2015 and the first half of 2016 points to some loss in momentum in the US,” the IMF said.
“A prolonged inventory correction cycle and weak business investment has prompted a downward revision of the 2016 forecast.”
“The weakness in capital spending reflects in part still-negative energy investment, dollar appreciation, financial turbulence earlier in the year, and heightened policy uncertainty related to the electoral cycle.”
The IMF also trimmed its US growth forecast for 2017 to 2.2pc, suggesting only a modest rebound.
It said Washington needs to boost infrastructure investment but also, mindful of the rising costs of health care and social security with an ageing population, requires “a credible deficit and debt-reduction strategy”.
But it suggested that US politicians could do more damage to the economy if they follow nationalist tendencies in the US election to an extreme.
It warned of a political movement in richer countries “that blames globalisation for all woes and seeks somehow to wall off the economy from global trends rather than engage cooperatively with foreign nations”. –