The International Monetary Fund (IMF) has revised down its forecasts for US economic growth, accounting for the Trump administration’s failure to launch its promised stimulus.
In its annual check-up on the state of the world’s largest economy, the globe’s lender of last resort said it was dropping its assumption that tax cuts and higher infrastructure spending would boost growth as the plans were “still evolving”.
The IMF also suggested that low and middle-income earners were likely to be disproportionately hit by spending cuts elsewhere in the administrations’s latest budget plans.
It forecast US economic growth this year of 2.1% – down from the 2.3% it predicted in April – casting doubt too on whether the investment package would achieve its stated aim of a growth rate above 3% for the economy.
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The report said such a leap in performance was “unlikely” and pointed to the fact the jobless rate was already at a low level consistent with full employment.
The fund, which called for more balanced welfare cuts than a draft budget proposal had signalled, released its report as the White House looks to put greater emphasis on its economic agenda after political battles over health and security.
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Mr Trump wants a $1tn overhaul of the country’s ageing transport system – partly paid for through a series of tax breaks – which he argues has been holding back growth.
He is also moving to bolster bank lending by cutting red tape imposed on the banking industry in the wake of the financial crisis – imposed by the Obama administration to help prevent risky activity in the sector.
The President promised to “do a number” on the so-called Dodd-Frank rules – saying they were responsible for holding the American people back.
Dodd-Frank refers to the wide-ranging set of measures implemented by the United States to help prevent another financial crisis.
The IMF, which has supported Dodd-Frank, sounded a warning on trade too.
The report warned against measures that would make the US less open to trade, even while there is room to modernise pacts like the North American Free Trade Agreement, a process Washington has already begun.
The US “ought to be judicious in its use of import restrictions,” the fund said.