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International Monetary Fund Downgrades US Growth Forecast

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Jul. 31 2017, Updated 9:12 a.m. ET

US growth forecast

In its July 23 update to its WEO (World Economic Outlook) report, the IMF (International Monetary Fund) downgraded its US growth forecast. Growth for 2017 has been revised to 2.1% from 2.3%, and to 2.1% from 2.5% in 2018. The IMF’s reasons for the downgrade included lackluster growth in the first quarter and a change in expectations for fiscal expansion in the United States.

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Uncertainty drags US growth forecast lower

The IMF has blamed the uncertainty surrounding Trump’s promised fiscal reforms for the downward revision to US growth. After the US election in November, markets (USMV) and the IMF believed that once Trump took office, he would unleash many fiscal and tax reforms and they would lead to further expansion in the US economy. Seven months later, the Trump administration was still struggling with the healthcare (XLV) bill, and there seems to be no urgency in introducing new reforms. The IMF has clearly stated that this delay in implementing reforms is the key reason for downgrading its 2018 growth forecast from 2.5% to 2.1%.

Next two quarters are important for the US

US second quarter GDP data is due to be published, and the market consensus stands at 2.6%. First quarter GDP has been revised upwards to 1.4%, and leading economic indicators from previous months point to healthy second-quarter growth for the US economy (VTI). Unless there is a positive surprise for growth in the third and fourth quarters, the IMF’s 2.1% seems fair. We’ll have to wait and watch for new data to come in, follow the Fed’s interest rate (BND) policy, and keep a track of US inflation (VTIP), which has been lagging behind. In the next part of this series, we’ll analyze why the IMF has downgraded its UK growth forecast.

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