IMF lowers growth outlook for U.S.

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

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

The world’s biggest economy will probably have a hard time hitting Trump’s target of 3 percent annual growth as it’s faced with problems including an aging population and low productivity growth, and with a labor market already back at full employment, the agency said in its assessment of the U.S. economy, released Tuesday.

Given broad uncertainty on policy, “we have removed the assumed fiscal stimulus from our forecast,” Alejandro Werner, director of the IMF’s Western Hemisphere Department, said at a news conference in Washington.

The IMF’s assessment casts doubt over a more optimistic forecast in the White House budget proposal, which projects growth will accelerate to 3 percent 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 in a statement Tuesday.

“The U.S. is effectively at full employment,” the IMF 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, and many of the cases came when economies were recovering from recessions, the IMF said. The only time the U.S. economy accelerated at such a pace came in the early 1980s, when it was recovering from a deep recession.

The IMF notes the U.S. is enjoying its third-longest expansion since 1850, with “persistently strong” job growth. Economic growth will slip to 1.9 percent in 2019 and 1.8 per-

cent in 2020, according to the fund’s forecasts.

IMF officials said the details of the Trump administration’s economic policies appear undecided. As a result, the fund didn’t include in its projections the effects of a tax overhaul — which the administration has said is a priority but which will need congressional approval — or Trump’s proposed budget cuts.

The economy’s mediumterm outlook is clouded by imbalances, including rising public debt and a currency that is “moderately” overvalued between 10 percent to 20 percent,

said the fund.

“The U.S. economic model is not working as well as it could in generating broadly shared income growth,” the IMF said.

The U.S. is having trouble adapting to trends such as low productivity growth, an aging population and changes to the job market from technology, the IMF said, noting that household incomes are stagnating for a large share of the population.

The IMF again suggested the Federal Reserve should be ready to let price growth modestly overshoot its inflation goal, a move that would “provide valuable insurance against the risks of disinflation and having to bring the federal