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June 28, 2017

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Doubtful on Trump, IMF cuts US outlook

THE lack of details on President Donald Trump’s plans to reform the US economy prompted the International Monetary Fund yesterday to cut its growth forecast for this year and next.

The IMF in January raised the estimates expecting fiscal stimulus from the Trump administration, but has reverted to the previous calculations — which project the economy to expand 2.1 percent in 2017 and 2018, down from 2.3 percent and 2.5 percent, respectively.

During 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, 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.

“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.”

But 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 3 percent.

“The international experience and US history would suggest that a sustained acceleration in annual growth of more than 1 percentage point, 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.

It also warned against measures that would make the US less open to trade.


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