The US President Donald Trumps aggressive trade policies and expansive tax cut will generate a near-term boost to growth but also will elevate the risks to the US and global economy, and increase the size of those risks, the IMF said in its annual review of the US economy. The near-term outlook for the US 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.
These positive out turns have supported, and been reinforced by, a favorable external environment with a broad-based pick up in global activity. Next year, the US economy is expected to mark the longest expansion in its recorded history. The balance of evidence suggests that the US economy is beyond full employment. However, despite good near-term prospects, a number of vulnerabilities are being built-up for the medium-term.
A slow but steady rise in wage and price inflation is expected as labor and product markets tighten. After spending much of the past decade below 2%, core PCE inflation is expected to rise modestly above that level by mid-year. The combined effect of the administration’s tax and spending policies will cause the federal government deficit to exceed 4.5% of GDP by 2019. This is nearly double what the deficit was just 3 years ago. Such a strongly procyclical fiscal policy is quite rare in the US context and has not been seen since the Johnson administration in the 1960s, says the IMF.