The International Monetary Fund has decreased its estimate of how fast the U.S. economy will grow in coming years, a change the organization said reflects doubts about President Trump's ability to deliver on his planned agenda of tax cuts and new infrastructure spending.
The IMF now projects the U.S. economy will grow at a rate of 2.1 percent in both 2017 and 2018, it said in its July update to the World Economic Outlook. In its previous estimate issued in April, the organization predicted the U.S. economy would grow at 2.3 percent in 2017 and 2.5 percent in 2018.
“Over the next two years, U.S. growth should remain above its longer-run potential growth rate. But we have reduced our forecasts for both 2017 and 2018 to 2.1 percent because near-term U.S. fiscal policy looks less likely to be expansionary than we believed in April,” wrote Maurice Obstfeld, the IMF’s chief economist, in an accompanying blog.
The Trump administration came into office six months ago with an ambitious plan to use tax cuts and other measures to boost economic growth to 3 percent or 4 percent, rates not seen in years. But while the administration has moved quickly to slash regulations on businesses, its plans for tax cuts have been bogged down by clashes in Congress and the administration over health care and other issues. The White House on Monday reiterated the administration is optimistic about its ability to achieve its 3 percent growth target.
The IMF said U.S. economic growth could pick up if the administration implements measures like overhauling the tax code — yet it could also fall if Trump’s budget, which consolidates many parts of the government as part of an overall spending reduction, is approved.
The fund also cautioned that government measures in the United States and Britain’s post-Brexit negotiations could end up worsening the current environment of policy uncertainty, harming private investment and weakening growth. It warned that the failure to make growth inclusive could lead to the further spread of protectionism, which could disrupt global supply chains and lower growth.
Even so, the fund’s report gave a positive picture of a strengthening global economy, buoyed by lower oil prices and a rebound in trade.
The International Monetary Fund, an organization charged with ensuring global financial stability, provides some of the most detailed and closely watched estimates of the progress of economies around the world.
Globally, the IMF raised its forecasts for 2016 slightly from 3.1 percent to 3.2 percent, reflecting stronger growth in Iran and India.
It did not alter its forecasts for global growth in the next few years, which remain at 3.5 percent in 2017 and 3.6 percent in 2018. But it said that the unchanged projections masked “somewhat different contributions at the country level” — including lower growth forecasts for the United States and United Kingdom, and higher growth expectations for France, Germany, Italy, Spain, Japan and Canada.
The IMF also revised up China’s growth projections, saying that it expected banks to continue to lend to support activity so that authorities could meet a highly publicized target of doubling China’s economy by 2020. Yet it said that such lending could increase the risks to China’s economy in the medium term, as debt continues to build up.
The fund also said that steady interest rate hikes in the United States could post a risk to growth by making lending more difficult. Higher interest rates, which mean investors get a better return on their investment, could also trigger a flow of capital out of emerging economies into the United States, which could push up the U.S. dollar and strain emerging economies.
The U.S. Federal Reserve is in the process of gradually raising U.S. interest rates to a more normal level after cutting them to stimulate the economy after the recession. In June, the Fed raised its benchmark interest rate by a quarter-point, the third such increase in six months.
Fed officials will meet again this week to discuss further rate hikes, but most market observers expect the Fed to delay any further rate increases until the end of this year.
The IMF said that, while a welcome change from the financial crisis, global growth rates are still lower than those in years past, because of persistent economic challenges like aging populations, low productivity growth and weak investment in many countries.