By Andrew Mayeda
The International Monetary Fund cut its outlook for the US economy, removing assumptions of President Donald Trump’s plans to cut taxes and boost infrastructure spending to spur growth.
The IMF reduced its forecast for US 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 fund also cut its projection for US 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 ranging from an aging population to low productivity growth, and with a labor market already back at full employment, the fund said in its annual assessment of the US 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 press briefing 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 US is effectively at full employment,” the lender said. “For policy changes to be successful in achieving sustained, higher growth they would need to raise the US potential growth path.”
Growth surges on the scale Trump is predicting have been rare in the US 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 US economy accelerated at such a pace came in the early 1980s, when it was recovering from a deep recession.
The IMF notes the US is enjoying its third-longest expansion since 1850, with “persistently strong” job growth. Growth will slip to 1.9 percent in 2019 and 1.8 percent 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 any tax reforms”•which the administration has said is a priority but will need congressional approval”•or Trump’s proposed budget cuts.
The US Treasury said it welcomes the IMF’s support for the administration’s “broad policy objectives.”
“We are focused on making significant reforms to our tax and regulatory policies, as well as renegotiating trade agreements to be more balanced for American workers, which will lead to stronger economic growth and job creation,” the department said on Tuesday in a statement.