Harsh winter weather, West Coast port congestion, plunging oil prices and a strong dollar all contributed to a weaker economic growth forecast, according to the International Monetary Fund’s 2015 U.S. economic review.
The International Monetary Fund has downgraded its forecast for United States economic growth in 2015 to 2.5 percent from its most recent prediction of 3.1 percent in April.
IMF on Thursday released its annual review of the U.S. economy, in which it also recommended the Federal Reserve postpone raising baseline interest rates until the first half of 2016.
“The outlook by the IMF of the U.S. economy is rather positive, yet we have revised downward our forecast for 2015,” said IMF Managing Director Christine Lagarde in an interview on the NPR program “Morning Edition.”
Lagarde said harsh winter weather, West Coast port congestion, plunging investment in the oil and energy sector, and a strong dollar all contributed to weaker economic growth in the first quarter of 2015 and the IMF’s less optimistic outlook going forward.
The good news, according to the report, is that although the abovementioned factors will slow growth in 2015, “These developments represent a temporary drag but not a long-lasting brake on growth.”
Due to shifting monetary policies and an interest in U.S. dollar assets, the dollar has seen a rapid increase in its value in the past year, rising 13 percent in “real effective terms,” said IMF. IMF characterized the dollar as a “moderately overvalued currency,” which it says is “impacting U.S. growth and job creation, as well as weighing on inflation.”
In terms of the transportation and logistics industry, a strong dollar makes U.S. exports more expensive and, therefore, less competitive in foreign markets.
“There is a risk that a further marked appreciation of the dollar — particularly one that takes place in an environment where policies to address growth deficiencies languish both in the U.S. and abroad — would be harmful” IMF added.
As a result of its weaker economic outlook, as well as “significant uncertainty around inflation prospects, the degree of slack and the neutral policy rate,” IMF said there is a “strong case” for waiting to raise baseline interest rates “until there are more tangible signs of wage or price inflation.”
“The risk if the interest rate is raised too fast is that it operates as a brake on growth and that the inflation rate could go down,” said Lagarde. “So what we’re saying is to avoid that risk, it is probably better to wait a little bit, such as early 2016, even if it is at the risk of having slightly higher than 2 percent inflation as a result of having waiting.”
Lagrande also warned against focusing too heavily on reducing the U.S.’s debt and deficit, as that could be damaging to short-term growth.
“The United States needs to have a medium-term fiscal policy that is aiming at reducing the long-term debt. In the immediate short term there is no great risk of increase of that U.S. debt,” she said. “Then in the short term, some measures can be taken in order to sustain growth, in order to encourage growth, by way of infrastructure investments, for instance.”
IMF downgrades U.S. economic growth forecast
