IMF urges US to tackle growth constraints

By CHEN WEIHUA | | Updated: 2017-07-27 10:47

The International Monetary Fund on Thursday called on the United States to bolster efforts to address multiple constraints on its medium-term economic growth prospects.

The IMF expects the US economy to grow by 2.1 percent this year and next year. That is down from the forecast of 2.3 percent for 2017 and 2.5 percent for 2018 made earlier this year.

The revision was attributed to the assumption that US fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of US fiscal policy changes. In addition, market expectations of fiscal stimulus have also receded.

The US is in its longest economic expansion since 1895. The unemployment rate has fallen to 4.4 percent and job growth continues to be strong, according to the IMF Article IV consultation with the US, concluded on July 24 and released on Thursday. IMF usually conducts Article IV consultations with its members every year to assess the health of their individual economies.

With the US economy at full employment, it will need to gradually remove both fiscal and monetary support, the report said.

Yasser Abdih, a senior economist on the US desk of IMF's Western Hemisphere Department, said the constraints that need to be addressed include weak productivity growth, an aging population, falling labor force participation, an increasingly polarized income distribution and high levels of poverty.

"These growing headwinds are made worse by a share of income paid to workers that is nearly 4 percentage points lower than that in the early 2000s, a middle class that has shrunk to its smallest size over the past 30 years and a potential growth rate that is virtually the lowest since the 1940s," he said in a press release.

In the report, the IMF recommended that the US get its economic policy mix right, including a gradual and sustained reduction in the general government deficit and continuing to gradually raise interest rates. It has also called for simplifying the tax system, improving infrastructure and revitalizing trade.

"Promoting a level playing field in trade is favorable for the US and elsewhere… The US would gain by keeping its markets open as it pursues new or amended trade agreements," the report said.

US President Donald Trump's administration has triggered wide concern for its anti-globalization and anti-trade rhetoric. Trump has announced US withdrawal from the 12-nation Trans-Pacific Partnership (TPP). The US is planning to renegotiate the North America Free Trade Agreement (NAFTA) with Mexico and Canada.

The IMF has called on the US to support low- and middle-income households, adopt a skills-based immigration reform, simplify federal regulations, strengthen healthcare coverage, and minimize the unintended consequences of technology and import penetration.

In a chart comparing 24 OECD (Organization of Economic Cooperation and Development) economies, the US fared poorly in a number of categories, such as average annual wages, labor force participation, and the share of people 25 to 34 years old with bachelor's degree.

In its World Economic Outlook released earlier this week, the IMF predicted that the Chinese economy will grow 6.7 percent in 2017, the same as for 2016, and decline modestly to 6.4 percent in 2018.

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