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IMF Cuts US Growth Forecast

Posted by Joseph Trevisani on Jul 23, 2014 2:32:00 PM

The International Monetary Fund lowered its growth estimate for the U.S. economy for the second time this year as the first quarter contraction ballooned from -1.0 percent to -2.9 percent. 

The IMF reduced its GDP prediction for 2014 by 0.3 percent to 1.7 percent. In April the Washington-based fund had predicted U.S. GDP would expand 2.8 percent this year. That original projection was reduced to 2.0 percent in June.

This assessment is considerably weaker than both the Federal Reserve's central projection of 2.1 percent to 2.3 percent and its overall range of 1.9 percent to 2.4 percent. The Fed estimates were revised in June, the central tendency from 2.8 percent to 3.0 percent and the range from 2.2 percent to 2.6 percent.  

If the current forecast is accurate it would be the weakest annual growth since 2009 when the economy contracted 0.15 percent. The American economy grew 2.58 percent in 2013, 1.95 percent in 2012, 2.05 percent in 2011, and 2.78 percent in 2010. 

The fund said the U.S economy will continue to  gradually improve. “The economy is expected to reach full employment slowly and inflation pressures are forecast to remain muted,” the IMF noted in its report.

As with the Fed and many other analysts the IMF blamed winter weather for the unexpected slide in first quarter GDP but said it anticipates that growth will accelerate to above 3 percent for the remainder of this year and for all of 2015.  

In order for the American economy to meet the IMF forecast of 1.7 percent growth for the year it will have to expand at 2.4 percent or better for the final three quarters.  

The first estimate for second quarter GDP will be issued by the Bureau of Economic Analysis of the Commerce Department on July 30th. Economists in the Bloomberg survey have forecast 2.9 percent.  The initial estimate will be revised twice on August 28 and September 26th.

The IMF and the Federal Reserve have consistently overestimated the recovery prowess of the U.S. economy beginning each year since the recession with forecasts which have been steadily reduced as the quarters unroll.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg, Federal Reserve

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