Abu Dhabi, UAEMonday 21 October 2019

US economy to record longest expansion in history, IMF says

Economic activity set to grow by 2.6% this year and 1.9% in 2020

Christine Lagarde, IMF's managing director, while speaking during a news conference in Washington on Thursday. Bloomberg
Christine Lagarde, IMF's managing director, while speaking during a news conference in Washington on Thursday. Bloomberg

The US economy will record the longest expansion in the country's history by this July, but it could suffer from the multilateral trade stance that US President Donald Trump has adopted, the International Monetary Fund said.

“It is important that the tensions between the US and its trading partners including China and Mexico are quickly resolved through a comprehensive agreement … that results in a stronger and more integrated international trading system,” said Christine Lagarde, the IMF’s managing director, in a conference in the US on Thursday.

The US-China trade war initiated by Mr Trump from last year - when he imposed tariffs on exports of some products from China, and did the same with Mexico this year - has hurt the global economy's growth prospects by denting profitability in industries such as aviation and disrupting global supply chains.

The move has damaged global investor sentiment, roiled stock markets and threatens to evoke further retaliatory trade responses, the IMF noted. Talks between Beijing and Washington to resolve the trade dispute have stalled, leaving in place tariffs on $360 billion (Dh1.3 trillion) worth of goods between the world's two biggest economies.

On the positive side, the US - the world's biggest economy - has repaired damage wrought by the financial crisis and demonstrated resilience since 2009, the Washington-based lender said.

The US economy is projected to grow by 2.6 per cent this year and 1.9 per cent in 2020, according to the IMF. This represents an increase of around 0.3 percentage points from the IMF's 2019 forecast.

“This is an important achievement, driven by robust private sector demand and by policy choices that have helped spur growth and job creation,” Ms Lagarde said.

Unemployment is at levels not seen since the late 1960s - around 3.6 per cent as of May, according to a US Labor Department report on Friday - and wages and household incomes are rising. “This is happening at a time when inflationary pressures in the US remain very subdued,” she added.

The IMF also said that an average of two million jobs per year have been created in the US as its economy has grown. Real wages are rising and productivity growth seems to be recovering.

The IMF describes economic expansion as growth in the level of economic activity and of the goods and services available.

While issuing its near-term outlook on the US economy, the IMF said the US would gain by working with international partners to strengthen its new rules-based, multilateral trading system.

“This should include advancing trade negotiations in areas such as e-commerce and services. [The] US, Mexico and Canada Agreement could, if approved, alleviate uncertainty and provide some modernisation in the areas of services, e-commerce, and data transparency,” according to the IMF.

'Multilateral' trade systems are commerce agreements between three or more nations. They are said to make it easier for businesses to import and export and reduce tariffs.

The IMF said despite some positive macroeconomic outcomes, the benefits from the US's decade-long expansion in gross domestic product have not been widely shared across the country. Despite spending a high proportion of GDP on education, almost 45 million Americans still live in poverty.

“Average life expectancy has trended downward in recent years, income and wealth polarisation has increased, social mobility has steadily eroded … While the poverty rate is falling, it remains higher than in other advanced economies,” Ms Lagarde said.

US employers added the fewest workers in three months in May, and wage gains cooled, according to a government-issued jobs report out Friday.

Payrolls at "non-farms" (US goods, construction and manufacturing firms, said to be a bellwether indicator of economic health) rose 75,000 in May, far missing the mark of Bloomberg’s downward revision of 175,000 more jobs, the report from the US Labor Department showed.

The IMF recommended that the US addresses fiscal imbalances. Public debt - which has reached a record high at around $22tn - is on an unsustainable path and policy adjustments are needed to reverse the widening fiscal deficit, the lender said.

Updated: June 8, 2019 01:34 PM

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