The International Monetary Fund has cut its forecast for U.S. economic growth over the next two years, citing the Trump administration’s lack of progress in implementing tax cuts and infrastructure improvements.
President Trump has targeted 3% growth, a rate that has not been seen since the Clinton administration. Average growth rates slowed to below 2% during the presidencies of George W. Bush and Barack Obama.
In its July World Economic Outlook, the IMF doesn’t see much change any time soon, projecting the U.S. economy will grow at a rate of 2.1% in both 2017 and 2018. In April, it forecast growth of 2.3% in 2017 and 2.5% in 2018.
The fund cited the economy’s slow start to the year — GDP grew 1.4% in the first quarter. In addition, it said, “the major factor behind the growth revision, especially for 2018, is the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of U.S. fiscal policy changes.”
“Market expectations of fiscal stimulus have also receded,” the IMF added.
The White House has yet to introduce tax reform or infrastructure legislation, both of which Trump promised during his election campaign. “Near-term U.S. fiscal policy looks less likely to be expansionary than we believed in April,” Maurice Obstfeld, the IMF’s chief economist, said in a blog post.
The U.S. downgrade came as the IMF affirmed its April forecast of global growth of 3.5% in 2017 and 3.6% in 2018, citing “signs of continued strengthening of global activity,” particularly in trade and industrial production.
“The cyclical rebound could be stronger and more sustained in Europe, where political risk has diminished,” the fund said as it revised upward its growth forecasts for Germany (0.2 points to 1.8%), France (0.1 points to 1.5%), Italy (0.5 points to 1.3%), and Spain (0.5 points to 3.1%).
Britain, however, was a European black spot. In the first downgrade since the Brexit vote, the IMF now expects the U.K. economy will expand by 1.7% this year, 0.3 points lower than the April estimate.