WASHINGTON: The International Monetary Fund on Wednesday lowered its US economic growth forecast for 2014 after severe winter weather in the first quarter delivered a sharp contraction.
The IMF projected that the world’s largest economy would grow a “disappointing” 1.7 per cent this year, after a 1.9pc expansion in 2013.
The forecast marked another downgrade from the IMF, which estimated US growth of 2pc for the year in mid-June, down from a 2.8pc estimate in April.
“An unusually harsh winter conspired with other factors, including an inventory correction, a still-struggling housing market, and slower external demand” to lead the economy to contract by 2.9pc in the first quarter, the 188-nation global lender said.
Although activity appears set to pick up in the rest of the year to well above the country’s growth potential in a range of 3.0-3.5pc, it would not be able to offset the first-quarter drag, the worst contraction in five years.
“This means growth for the year as a whole will be a disappointing 1.7pc,” the IMF said in a statement following its annual report card on the member economy, known as an Article IV consultation.
But the following year should see a strong rebound, with 2015 growth picking up steam to a 3pc rate, the fastest annual pace since 2005, it said.
The IMF predicted the improvement would be driven by strong consumption growth, a declining fiscal drag, a pickup in residential investment, and easy financial conditions.
“Risks around this outlook include slowing growth in emerging markets, oil price spikes related to events in Ukraine and Iraq, and earlier-than-expected interest rate rises.” Yet for the medium term, the US economy was expected to level off at just above 2pc for the next several years, “significantly below” the historic average growth rate as activity is weighed down by the effects of an aging population and more modest prospects for productivity growth.
“This makes it critical for the authorities to take immediate steps to raise productivity, encourage innovation, augment human and physical capital, and increase labour force participation,” the IMF said.—AFP
Published in Dawn, July 24th, 2014
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