The United States is projected to grow 2.7 percent in 2018 as President Trump’s tax cuts boost growth, the International Monetary Fund said in a new report Monday, delivering more positive economic news as the president passes his one-year mark in the White House.
But deep inequality remains in the country and the IMF does not expect the growth to last long.
“We certainly should feel encouraged by the strengthened growth, but we should not feel satisfied. There are still too many people who are left out of that recovery and acceleration," said Christine Lagarde, head of the IMF on Monday.
The IMF had originally forecast just 2.3 percent growth for America but lifted its projection significantly after Republicans in late December passed the largest overhaul of the U.S. tax code in over 30 years.
The massive reduction in the corporation tax rate from 35 percent to 21 percent should stimulate business investment and growth, the IMF wrote in its latest quarterly World Economic Outlook, welcome news for the White House as it tries to boost growth, jobs and wages.
[Ahead of Davos, even the 1 percent worry about inequality]
America should also benefit from the global economic rebound that is underway, causing more trade and purchases of some U.S. products. At least 120 countries have seen a pickup in growth in the past year, the IMF said, a synchronized global upturn that hasn’t been seen since 2010.
The IMF is the latest forecaster to predict a brighter year ahead for the United States. Wells Fargo now predicts 3 percent growth for 2018.
“The backdrop at the start of 2018 is encouraging and supports an accelerated pace of U.S. GDP growth,” said Sam Bullard, senior economist at Wells Fargo.
But the IMF also cautioned that the growth spurt would be short-lived and other organizations, including the World Economic Forum, warn that faster growth alone will not reduce the inequality problem that has seen the top 1 percent thrive while middle-class incomes have stagnated for two decades.
The tax cuts are only expected to ramp up growth for this year and next. Then the boost will go away as the budget deficit grows and the government is forced to make tough choices about spending reductions or raising more revenue.
The IMF said growth will be lower than expected from 2022 onward “offsetting some of the earlier growth gains.”
It’s also likely that the trade deficit, which Trump doesn’t like, will grow even more as the economy improves and Americans buy more overseas goods.
“Some of the demand growth is likely to leak into a wider trade deficit,” said John Ryding, chief economist at RDQ Economics. He thinks that could trigger the Trump administration to put up trade restrictions, which could hurt growth.
There’s heavy debate among economists about whether the benefits of the Trump tax cut will extend beyond 2019 and how much better off the average worker will be.
Republicans argued the tax cuts would spur companies to invest far more in their factories and workers and those investments will trigger faster growth for years to come. But many economists don’t think the gains will last.
“Given where we currently stand in the duration of the business cycle, I think it would be difficult to maintain a 3 percent or better pace of growth for an extended period,” said Bullard.
A separate report out Monday from the World Economic Forum highlights the ongoing problem in the United States and most advanced economies where much of the population has been left out of the gains. Trump recognized the anxieties of many working-class Americans during the campaign and promised he would help those at the bottom.
Of the 29 countries the World Economic Forum assessed, the United States ranked 10th for economic growth but dropped near the bottom — 28th place — for ensuring everyone benefits from growth.
“Strong GDP growth cannot be relied upon by itself to generate inclusive socio-economic progress and rising median living standards,” the report concluded.
Trump is expected to speak Friday at the World Economic Forum’s annual meeting in Davos, Switzerland — the first U.S. president to do so since Bill Clinton in 2000.
That year also marked strong growth and stock market performance, although the Dot-com bubble burst shortly afterward.
While the majority of Americans — nearly 60 percent — rate the U.S. economy as “excellent” or “good” right now, only 38 percent give Trump credit for it, according to a Washington Post-ABC poll conducted last week
The White House believes that will change as Americans begin to see bigger paychecks starting in February from the tax cuts.
But there is rising anxiety about unstable jobs and incomes in America, with a growing number of workers becoming “contract” employees who are only hired for short stints, with few assurances about where the next paycheck will come from.
One in five workers now identifies as a contract worker, according to an NPR-Marist poll out Monday. Almost half say their income fluctuates greatly from month to month.