The lack of details on President Donald Trump’s plans to reform the US economy prompted the International Monetary Fund on Tuesday to cut its growth forecast for this year and next.
The IMF in January raised the estimates on the expectation of fiscal stimulus from the Trump administration, but have reverted back to the previous calculations — which project the economy to expand by 2.1 percent in 2017 and 2018, down from 2.3 percent and 2.5 percent, respectively.
During the annual discussions with US officials on the outlook for the economy, “it became evident that many details about these plans are still undecided,” the IMF said of the administration’s planned reforms in the so-called Article IV report.
The IMF warned that “significant policy uncertainties imply larger-than-usual” risks to the US outlook on either side, since spending cuts could lower growth, while tax cuts could provide stimulus and expand the economy.
Even while the US is seeing its third longest expansion since 1850 and is at full employment, the world’s largest economy is facing rising public debt and an overvalued currency — which tends to hinder exports.
“A comprehensive policy package is needed,” the report said.
The fund welcomed the administration’s objectives to bring down debt and adjust spending policies “to finance priorities such as infrastructure.”
However, the discussions “revealed differences on a range of policies and left open questions as to whether the administration’s proposed policy strategies are best suited to achieve their intended purpose.”
In fact, the fund called into question the stated goal of the Trump administration to accelerate growth to more than three percent.
“The international experience and US history would suggest that a sustained acceleration in annual growth of more than 1 percentage points, as projected by the administration, is unlikely,” the report said.
The IMF called for policies to raise the potential growth rate of the US economy, including through improved education and training programs.
The fund however criticized the proposal put forth so far, with deep spending cuts “that, in the staff’s view, would seem to place a disproportionate share of the adjustment burden on low- and middle-income households.”
The report also warned against measures that would make the US less open to trade, even while there is room to modernize pacts like the North American Free Trade Agreement (NAFTA), a process Washington already has begun.
The United States “ought to be judicious in its use of import restrictions,” the fund said.
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