President Donald Trump’s budget plans will fail to stimulate US growth anywhere near his target, according to the International Monetary Fund (IMF).
In its annual review of US economic policy the IMF said: “Even with an ideal constellation of pro-growth policies, the potential growth dividend is likely to be less than that projected in the budget and will take longer to materialise.”
Trump has previously said he will target four per cent growth, but the uncertainty over Trump’s spending plans has forced the IMF to revise down its forecasts for US economic growth to less than half that by 2020.
Alejandro Werner, director of the IMF Western hemisphere department, said the downward revision “in large part reflects the uncertainty about the nature of the macroeconomic policies that will be put in place in the coming months.”
In April the influential organisation had assumed the President would achieve at least some of his growth-stimulating goals, but he has so failed to increase spending or cut taxes dramatically.
Growth will struggle to rise beyond 2.1 per cent this year and next, the IMF forecasts, before slowing to only 1.8 per cent annual growth in 2020. It had previously forecast growth of 2.3 per cent and 2.5 per cent in 2017 and 2018 respectively.
Trump’s budget for the fiscal year ending in 2018 assumes the economy will grow by 2.9 per cent on average in the coming decade, but the IMF’s central forecast says this is unlikely to be achieved in the absence of a clear plan.
The IMF said: “Many details about these plans are still undecided.”
It added: “Significant policy uncertainties imply larger-than-usual, two-sided risks to the forecast.”
Any increase in spending could boost growth, but Trump would be forced to get spending hikes past the ultra-conservative wing of the Republicans, who have already balked at measures which would increase the fiscal deficit.
Meanwhile the risk of protectionist policies harming international links, while diminished, still represents a big threat to trade and growth, the IMF said.
The IMF also warned the US will need to act on “many fronts” to boost growth, including stimulating economic and productivity growth, as well as incentivising business investment, the IMF said.
Priorities should include reforming the complex US tax system and boosting spending on education and infrastructure, the IMF said.
Werner said: “The US economic model is not working as well as it could in generating broadly shared income growth.”