IMF Cuts U.S. Outlook, Calls Trump’s Growth Target Unlikely
The International Monetary Fund cut its outlook for the U.S. economy, removing assumptions of President Donald Trump’s plans to cut taxes and boost infrastructure spending to spur growth. The IMF reduced its forecast for U.S. growth this year to 2.1 percent, from 2.3 percent in the fund’s April update to its world economic outlook. The Washington-based fund also cut its projection for U.S. growth next year to 2.1 percent, from 2.5 percent in April. The world’s biggest economy will probably have a hard time hitting Trump’s target of 3 percent annual growth as it’s faced with problems ranging from an aging population to low productivity growth, and with a labour market already back at full employment, the fund said in its annual assessment of the U.S. economy released Tuesday. Given broad uncertainty on policy, “we have removed the assumed fiscal stimulus from our forecast,” Alejandro Werner, director of the IMF’s Western Hemisphere Department, said at a press briefing in Washington. The IMF’s assessment casts doubt over a more optimistic forecast in the White House budget proposal, which projects growth will accelerate to 3 percent by 2020 and keep up that pace for seven more years. Even with an “ideal constellation of pro-growth policies, the potential growth dividend is likely to be less than that projected in the budget and will take longer to materialize,” the IMF said in a statement Tuesday.
ECB’s Draghi opens door to policy tweak as economy recovers
European Central Bank President Mario Draghi opened the door to tweaks in the bank’s aggressive stimulus policy on Tuesday, fuelling market expectations that the ECB will announce a reduction of stimulus as soon as September. But any change in the bank’s stance, which includes sub-zero rates and massive bond purchases, should be gradual as “considerable” monetary support is still needed and the rebound in inflation will also depend on favourable global financing conditions. “A constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments – not in order to tighten the policy stance, but to keep it broadly unchanged,” Draghi told an ECB conference in Sintra, Portugal. His comments sent the euro half a percent higher as investors took them as a signal the ECB was preparing to announce a cut in massive bond purchases as soon as September. With its 2.3-trillion-euro asset buys running until the end of the year, the ECB will have to decide in the third quarter whether to extend or wind down the purchases, reconciling an apparent contradiction between healthy growth and weak inflation.
China industrial profits quicken in May, seen fading as finance costs rise
Profits at China’s industrial companies surged 16.7 percent in May from a year earlier, accelerating from 14 percent in April in spite of expectations of a slowdown as borrowing costs rise and the property market cools. For the first five months of the year, profits reached 2.9 trillion yuan ($424 billion), up 22.7 percent from the same period of last year although the growth pace was lower than the 24.4 percent annual rate for January-April 2017. “The quickened growth of China’s industrial profits was partly due to a low-base effect at the same time a year earlier, which marked the second slowest growth over the course of last year,” statistics bureau official He Ping said in a statement on Tuesday. Operating costs as a proportion of operating revenue rose on an annual basis for a third consecutive month in May, which He said needed to be closely watched. Profit growth at private enterprises and foreign enterprises fell to 14.0 percent and 18.9 percent respectively in the year to May, from 14.3 percent and 19.8 percent in January-April.