The International Monetary Fund has lowered the GDP growth projection for the United States from 2.3 percent to 2.1 percent for 2017, warning that the Trump administration is unlikely to achieve its stated goal of an annual GDP growth of 3 percent.
The International Monetary Fund (IMF) has lowered its gross domestic product (GDP) growth projections for the U.S. from 2.3 percent to 2.1 percent for 2017 and from 2.5 percent to 2.1 percent in 2018.
President Trump’s ambitious financial policies have yet to materialize, prompting the IMF to forecast moderate growth this year and next year, with a 1.8 percent growth rate by 2020, driven by consumption growth and private investments.
According to the IMF macroeconomic outlook, real GDP is 12 percent higher than its pre-recession peak with strong job growth. However, rising public debt and an overvalued U.S. dollar is hindering post-crisis growth, which has been “too low and too unequal”, said the IMF. As such, the Trump administration is unlikely to achieve its goal of annual GDP growth of 3 percent over a sustained period, the fund said.
“Like many other advanced economies the U.S. is being confronted with secular shifts on multiple fronts,” such as technological change that is reshaping the labor market, low productivity growth and an aging population, said the IMF. “Despite having high per capita income and being one of the most flexible, competitive, and innovative economies in the world, the U.S. model appears to be having difficulties adapting to these secular changes.”
The IMF is advising the U.S. to adopt a comprehensive policy package that addresses job creation, budget balance, public debt reduction, infrastructure and business investment, and faster productivity growth. However, even with the best possible pro-growth policies, “potential growth dividend is likely to be less than that projected in the budget and will take longer to materialize,” said the organization.
Regarding tax reform, the IMF recommended reforming business taxes, taxing offshore profits and a instituting broader federal-level consumption tax, carbon tax and federal gas tax. Specifically, the fund said “a broad-based, 5 percent consumption tax would generate around 1.5 percent of GDP per year in revenues, a carbon tax of around $45 per ton of CO2 would generate 0.5 percent of GDP per year, and each 50 cents increase in the gas tax would raise revenues of around 0.3 percent of GDP per year.”
An historic under-investment in infrastructure is highlighted in Trump’s budget, as it is “a growing constraint on private sector productivity and long-term growth and job creation,” the IMF said. According to the fund, “a permanent increase in federal, state and local infrastructure spending of at least 0.5 percent of GDP per year is needed.”
Regarding trade, the IMF noted the slowed pace of trade reform since the early 2000’s, adding that the U.S. should be “judicious” in its use of import restrictions on the grounds of national security.
Furthermore, the U.S. “would benefit by remaining open” to new or modernized trade agreement, including NAFTA.
IMF lowers U.S. growth forecast as Trump’s fiscal plans have yet to materialize
