IMF Guess At U.S. Growth Rate Is Too Low

A number of economists believe that a surge in consumer spending, probably brought on a tax cuts, and better-than-expected earnings may push GDP growth close to 4% in the current quarter, and likely over 3% for the year. The International Monetary Fund issued its study of the U.S. economy, and the organization predicts GDP growth of 2.9% for 2018. Both numbers can’t be right, and so far, the IMF number is too conservative.

IMF experts say in its “United States of America: Staff Concluding Statement of the 2018 Article IV Mission” that they expect growth to decelerate in the years ahead to 2.7% in 2019, 1.9% in 2020, 1.7% in 2021, 1.5% in 2022, and 1.4% in 2023. In other words, there is no recession in site, however, the U.S. economy will languish.

The reasons for the IMF’s lowering GDP growth are high public debt. In theory, a larger portion of the national budget that goes to debt service could hurt the ability of the government to have programs which stimulate the economy.  There could also be an “inflation surprise,” the value of the dollar may rise, and there could be a recession. Overall public policy could be such that it does not do enough to solve problems like a disintegrating infrastructure.

The IMF alludes to its longer-term concern in its introduction to the report:

The near-term outlook for the U.S. economy is one of strong growth and job creation. Unemployment is already near levels not seen since the late 1960s and growth is set to accelerate, aided by a near-term fiscal stimulus, a welcome recovery of private investment, and supportive financial conditions (see Table 1). These positive outturns have supported, and been reinforced by, a favorable external environment with a broad-based pick up in global activity. Next year, the U.S. economy is expected to mark the longest expansion in its recorded history. The balance of evidence suggests that the U.S. economy is beyond full employment. However, despite good near-term prospects, a number of vulnerabilities are being built-up for the medium-term.

In and of themselves, the IMF comments and analyses do not explain why U.S. GDP growth should drop from 2.9% to 1.4% over a period of six years. As forecasts go out that far, they are never more than a guess. Low unemployment and the health of American companies may indeed disappear, but they also may drive the economy to better numbers. The IMF numbers may well be far too low.