IMF cuts outlook for US, casts doubt on Trump target
Forecast clouded by rising public debt, low productivity growth
The International Monetary Fund has cut their growth outlook for the US, calling into question the Trump administration’s ambitious goal of achieving 3% growth by 2020.
The forecast for this year was revised to 2.1% growth, down from 2.3%, with expectations that it will converge to underlying potential growth rate of 1.8% by 2020.
From the IMF’s Concluding Statement from consultation with the US:
Significant policy uncertainties imply larger-than-usual, two-sided risks to the forecast. On the one hand, a medium-term path of fiscal consolidation, such as that proposed in the budget, would result in a growth rate that is below this baseline. On the other hand, spending reductions could be less ambitious and tax reforms could lower federal revenues, providing stimulus to the economy, raising near-term growth (and possibly potential growth), but with negative implications for debt sustainability and the current account imbalance. Over the medium-term, a broader retreat from cross-border integration would represent a downside risk to trade, sentiment, and growth.
Like many other advanced economies, the U.S. is being confronted with secular shifts on multiple fronts. These include technological change that is reshaping the labor market, low productivity growth, rising skills premia, and an aging population. 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. As was pointed out in the administration’s budget, these shifts are having real consequences for people’s livelihoods: household incomes are stagnating for a large share of the population (in inflation-adjusted terms, more than half of U.S. households has a lower income today than they did in 2000); job opportunities are deteriorating with many workers too discouraged to remain in the labor force (since 2007, the labor force participation rate has fallen from 66 to below 63 percent of the non-institutionalized civilian population); prospects for upward mobility are waning; and the poverty rate (at 13.5 percent) is one of the highest among advanced economies.