International Monetary Fund warns US over growth outlook as it slashes forecasts

Billy Bambrough
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As if people weren't worried enough already over the possibility of Brexit (Source: Getty)

The International Monetary Fund (IMF) has taken a break from warning over the risks of Brexit to caution the US on the strength of its economy.

The IMF has slashed its growth forecast for the US this year to 2.2 per cent, down from 2.4 per cent it predicted at the start of the year.

It blamed slower global growth, the contraction in the energy industry due to the oil price, a shrinking middle class, and lower consumer spending for the cut.

Read more: Has the Fed left it too late to raise rates?

The inter-governmental monetary body also said poverty and rising inequality in the US could constrain the country's economy potential.

Despite the cut, the group labeled the US economy as in “good shape”.

In the so-called concluding statement of the IMF mission to the US it said:

A total of 2.4m new jobs were created over the past year and unemployment has fallen to 4.7 per cent, its lowest level since the eve of the Great Recession.

Inflation remains contained, and the U.S. economy has repeatedly demonstrated its resilience in the face of financial market volatility, a strengthening dollar, and subdued global demand.

IMF managing director Christine Lagarde laid out what she called "four forces” that pose a challenge to future US growth at a press conference following the release of the report. They are a decline in labour force participation, a decline in productivity, the distribution of income and wealth has steadily become more and more polarised, and the share of the population living in poverty is at very high levels.

She said:

I would like to emphasise we think that the U.S. economy is in good shape, despite some setbacks in very recent months.

Unemployment is well below five per cent, in the past year an average of 200,000 new jobs were created every month, and household incomes are rising at a healthy clip.

I am confident that the US can remain on the frontier of innovation and opportunity.

The IMF also voiced its approval of the US Federal Reserve’s cautious approach to monetary policy, which Fed chair Janet Yellen has been defending to US politicians. At yesterday's testimony Yellen mentioned the EU referendum and, in a subtle hint of the importance she places on the issue, invited a UK reporter to ask her the first question at the following press conference.

Read more: US GDP comes in at a weak annualised 0.8 per cent in the first quarter

The Fed last week voted to hold its federal funds target rate at between 0.25 per cent and 0.5 per cent.

In its report the IMF cautioned the US over its infrastructure and the level of investment it has had in recent years.

The report read:

The public capital stock is aging and has been declining as a share of GDP for some time. New investment is urgently required to improve the quality and reliability of infrastructure, particularly for surface transportation.

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