The International Monetary Fund (IMF) today increased its forecasts of national growth from 2.3% to 2.6%, although it warned that the economic expansion is “unequal” and includes “problematic” social indicators such as a high poverty rate.
“Unemployment is at levels not seen since the late 1960s, and wage and household incomes are rising,” said Christine. “This is happening at a time when inflationary pressures in the US are very tight” Lagarde, managing director of the IMF, said at a press conference to present the annual review of the US economy.
The upward revision of the economic projections of April, which also affects those of 2020, with an estimated growth of 2% compared to the previous 1.9%, confirms the strength of the first world economy despite the current trade war with China and the threats to Mexico.
“The fiscal expansion applied in 2017-18 with tax cuts and an increase in both defense and non-defense spending has helped to bring growth to 2.9% in 2018. However, as the effects of the The fiscal impulse will be diluted in the coming years, the growth will return to the potential (of about 1.75%)” said the annual review report of the national economy of the Fund.
The IMF warned, however, that “a deepening of the current commercial disputes or an abrupt reversal of the recent lively conditions in the financial markets represent substantial risks to the US economy (with simultaneous negative effects of spreading).”
Lagarde reiterated that “nobody wins a commercial war” by emphasizing that all the parties involved “suffer”.
The managing director insisted this week that the solution of the commercial disputes should be an “immediate priority” at the G20 presidential summit at the end of the month in Japan, if global growth is not jeopardized.
Although economists agree on the negative effects of these disputes, US President Donald Trump has turned a deaf ear to these warnings by emphasizing the “fantastic” health of the country’s economy.
In May, it raised tariffs imposed on thousands of products imported from China from 10% to 25% and last week threatened a 5% tax on all imports from Mexico.
Although the macroeconomic numbers are positive, the report offers a bleak picture of the “problematic” social indicators and the medium-term challenges in the United States.
Lagarde stressed that “life expectancy has been reduced in recent years, the polarization of wealth and income has increased, and social mobility has been eroding.”
In fact, the report of the international financial institution mentions that the poverty rate continues to pre-crisis levels, and that currently almost 45 million Americans live in poverty.
On the other hand, the Fund once again called attention to the “unsustainable path” of the rise in the national debt, which is currently around 80% of the Gross Domestic Product (GDP).
For this, he recommended that “any successful reform package will include steps to address the expected increases in health and safety spending will be necessary to increase indirect taxes and establish a federal rate for carbon emissions.”
Finally, Lagarde considered the pause applied by the Federal Reserve (Fed) in its pace of monetary adjustment “appropriate”, and also noted that future increases in interest rates, currently between 2.25% and 2.5%, until “no greater signs of wage inflation or prices are seen than those currently seen”.