Tax-lowering, labor-market strength, benign financial conditions, and a favorable external climate will allow America's economy to grow at a rate of 2.9% this year and remain at 2.7% next. It is projection that International Monetary Fund collects in its annual review of greatest power on planet. However, body directed by Christine Lagarde warns that vulnerabilities generated by Donald Trump's policies begin to pile up, and that raises risks to economy.More information
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"The USA will mark longest expansion in records next year," says Lagarde. Fiscal reform will boost economy, mainly because of corporations ' response to tax-lowering in form of new investments. "Short-term prospects are robust," he reiterates. But it is something that still has to materialize and anticipates that this stimulus will fade over time, which will cause growth rate to fall to 1.9% in 2020 and 1.4% in 2023.
The agency's analysis is known one day after Federal reserve raised interest rates. The US central bank is more optimistic, and impetus for fiscal reform will lead to two more increases this year to prevent economy from overheating. An increase in price of money faster than expected will have an impact on emerging countries with dollar-accumulated debt, IMF says.
The US economy would be very close to its potential and its labour market is in full employment with unemployment rate at 3.8%. Salaries rebound, but increase remains weak when compared to previous economic recovery processes. Inflation will rise, though it predicts that it would be "modestly" placed above 2% target, although stimuli pose a risk.
The IMF also cites new spending agreement agreed in February as anor factor that drives growth. Combined with tax sales, y add about a percentage point to growth projections over next two years. But it will also lead to an increase in public deficit to 5% of GDP in five years and, as a result, public debt to 82.5% of GDP. This is a double risk to economy.
Christine Lagarde said at a press conference that coincides with Treasury Secretary Steven Mnuchin, where short-term prospects are very good. "But we disagree on middle and deadline," he admitted, "I hope you are right and that we are wrong because it will be good for everyone." He asked him to start consolidating public accounts without delay, because that will give him more leeway to make investments in infrastructure.
Trade policy does not seem to have a substantial effect on growth in US, in line with what was also expressed by Jerome Powell from Federal reserve. The stimuli will provoke, he says, that more is imported to meet demand. But resentment and fear of escalating tension can lead companies to consider ir investments. "The impact on GDP is relatively modest, but not on trust," says Lagarde.
"The trade war does not create winners," emphasized managing director, who warned of consequences for global economy as a whole, as well as questioning international system. For this reason, it called on US to work in a "constructive way" with its partners to resolve differences and come up with a solution that would allow for fair and reciprocal relations. "Trade barriers are not good for growth," he concluded.