International Monetary Fund slashes its US economic growth forecast

16th June 2014


The International Monetary Fund (IMF) has cut its US economic growth forecast for 2014 and does not anticipate a return to full employment for a few more years.

The IMF did however concede that more recent numbers suggest a meaningful rebound in activity is now underway and growth for the remainder of this year and 2015 should exceed potential.

But it added that this renewed dynamism provides only a partial offset to the weak first quarter and as a result, the IMF anticipates US GDP growth of 2% in 2014, a 0.8% reduction, while it expects it to rise to 3% in 2015.

In addition, the IMF does not expect the US to reach full employment until the end-2017 and inflationary pressures are predicted to remain muted.

In a statement, the IMF added: “Job growth has been healthy but labor markets are weaker than is implied by the headline unemployment number: long-term unemployment is high, labor force participation is well below what can be explained by demographic factors, and wages are stagnant.”

As such it stated that policy rates could afford to stay at zero for longer than the mid-2015 date currently foreseen by markets. It added: “If inflation were to rise more rapidly than expected and the economy was still well below full employment, tolerating a modest, temporary rise of inflation above the longer-term goal could be consistent with the Fed’s balanced approach as long as inflation expectations remain anchored and financial stability risks were low.”

However the latest official job numbers from the US have cheered investors. The better-than-expected 217,000 rise increase in non-farm payrolls last month showed that the gains were widespread, with strong increases across a number of industries. May’s total followed an even stronger 282,000 increase in April, which suggested the boost came on the back of the US getting itself back on track following the unseasonal polar vortex which saw US economy fall 0.1%, on an annualised basis, in the first quarter.

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