WASHINGTON – U.S. economic growth this year will likely be at the weakest pace since the Great Recession ended, the International Monetary Fund said, mostly because of a sharp, weather-related contraction in the first quarter.
But the global lending organization said Wednesday that it still expects growth resumed in the April-June quarter and will remain healthy in the second half of this year and next.
In its annual report on the U.S. economy, the IMF projects growth will be just 1.7 per cent this year, down from a 2 per cent estimate in June. That’s below last year’s 1.9 per cent pace and would be the slowest annual rate since the recession ended in June 2009.
The IMF’s outlook is more pessimistic than that of the Federal Reserve, which expects growth of at least 2.1 per cent. But it is in line with most other private economists.
The IMF says growth will rebound in the April-June quarter to a healthy 3 per cent to 3.5 per cent and remain in that range for the rest of this year. It also projects the economy will expand 3 per cent in 2015, which would be the best showing since 2005.
“Behind that pessimistic number, we do see a relatively optimistic view of the economy going forward,” said Nigel Chalk, deputy director of the IMF’s Western Hemisphere department.
The U.S. economy shrank 2.9 per cent in the first three months of the year, its worst showing in five years. Like most economists, the IMF attributed the slowdown partly to harsh winter weather, which closed factories and kept shoppers away from car dealerships and stores. It also cited other temporary factors, including a drop in exports and a slowdown in goods restocking.
But hiring has remained strong since the beginning of the year, despite the grim first quarter. That should boost consumer spending, the IMF said. Businesses will also likely step up their spending on plant and equipment, which has been weak so far this year.
The economy should benefit as government spending cuts and tax increases have slowed compared with 2013, the IMF said. Political fights over the budget have also ended, at least for this year, Sparks noted. That’s allowed the IMF to focus on longer-term issues facing the U.S. economy.
One of them is poverty. The IMF’s report said “recent growth has not been particularly inclusive” and noted that roughly 50 million Americans are poor, despite five years of growth and a steady drop in unemployment. The U.S. should boost its minimum wage and expand tax credits for the working poor, the report recommended.
In addition, growth may sink back to 2 per cent in the long run, the IMF warned, as the population ages. The U.S. should encourage more Americans to work by providing more childcare assistance, which could reverse recent declines of women in the workforce. Reforms to the government’s disability program could also encourage more part-time work.
The U.S. should also spend more on roads, bridges and other infrastructure to boost productivity, the IMF said.