International Monetary Fund cuts U.S. growth forecasts, citing lack of Trump fiscal details


Kristian Rouz - The International Monetary Fund (IMF) cut its outlook on the U.S. economic expansion for this year and 2018, saying that President Donald Trump's target growth of 3 percent per year is not realistic given the current circumstances. 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 US are now in the third-longest period of economic growth since 1850, given the full employment situation, but this hardly makes things any better, as disposable incomes are low, as is purchasing power, whilst the burden of household indebtedness is stunning. The US economy, in its current shape, the Fund said, is going at its fastest possible, because the unemployment is very low, at 4.3 percent, meaning it is the lack of reform that is holding the GDP growth back.

The IMF said: "Many details about these plans are still undecided".

Technology is reshaping product and labor markets, but productivity growth isn't picking up.

Priorities should include reforming the complex U.S. tax system and boosting spending on education and infrastructure, the International Monetary Fund said.

"All in all, in our judgment, the US economic model is not working as well as it could in generating broadly shared income growth", said Alejandro Werner, head of the IMF's Western Hemisphere department.

On the other hand, the president has made promises to promote USA economic growth.

The IMF disagreed, questioning whether the package as proposed will deliver the administration's long-term growth targets, balance the budget and cut public debt. Global experience and US history suggest a sustained acceleration in annual growth of more than 1 percentage point is unlikely, the IMF said. Although, the president already has said that the broad principles of this plan would be simplifying taxes, rebuilding roads and bridges, and lowering government spending. The Trump administration is counting on planned tax cuts, increased infrastructure spending and regulatory relief to boost expansion while balancing the budget.

The IMF said that the US economy would benefit by keeping its markets open as it pursues new and renegotiated trade agreements.

To raise revenue, the U.S. government should consider a "broad-based" federal consumption tax, a higher federal gas tax and put in place a carbon tax on greenhouse-gas emissions, the International Monetary Fund said - proposals that may be far-fetched under Republican control of Washington.

Trump's budget for the fiscal year ending in 2018 assumes the economy will grow by 2.9 per cent on average in the coming decade, but the IMF's central forecast says this is unlikely to be achieved in the absence of a clear plan.

The fund also warned against a White House plan to invoke national security to raise tariffs on steel imports, saying there was room for renegotiating trade deals such as the North American Free Trade Agreement in a way that was mutually beneficial.