IMF boosts U.S. growth forecast in 2025
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The U.S. economy will remain the world's growth powerhouse in 2025, International Monetary Fund economists anticipate, even as uncertainty around trade and immigration policies creates inflation risks.
The big picture: The latest World Economic Outlook envisions a more robust U.S. growth picture than seemed likely just three months ago, driven by strong consumer demand and productivity growth.
- That adds up to a favorable backdrop for the incoming Trump administration, even as the fund warns about some risks and uncertainties for the medium term.
- A separate report out Friday from the Congressional Budget Office projects continued high deficits over the years to come, not factoring in changes to fiscal policy enacted by the new administration.
By the numbers: IMF economists now project 2.7% U.S. GDP growth in 2025, up from 2.2% in their October projections. They simultaneously marked growth expectations down for major European economies.
Between the lines: The WEO does not mention President-elect Trump by name, but the impacts of his expected policies are evident throughout the document.
- "Confidence and positive sentiment in the United States, partly driven by deregulation, could boost both the demand and the supply side of the economy," the fund's economists write.
- They add that "relaxation of unduly tight regulations and reduced red tape for businesses may spur near-term US growth through higher investment," while warning that this could cause the dollar to appreciate and thus create financial headaches in many emerging markets.
What they're saying: In a blog post, IMF chief economist Pierre-Olivier Gourinchas writes that "while many of the policy shifts under the incoming US administration are hard to quantify precisely, they are likely to push inflation higher in the near term relative to our baseline."
- He adds that policies "such as higher tariffs or immigration curbs, will play out like negative supply shocks, reducing output and adding to price pressures."
The CBO's latest "Budget and Economic Outlook" for the coming decade contains reminders that strong U.S. growth in recent years has been propped up by high fiscal deficits.
- The good news in the report is that strong growth has improved the fiscal outlook relative to its June forecasts.
- The CBO now anticipates $1 trillion less in cumulative fiscal deficits over the coming decade than it did six months ago, and that debt as a share of GDP will reach 117% of GDP in 2034, compared to 122% in the June projection.
Yes, but: The CBO did not try to account for likely changes to fiscal policy under the incoming Trump administration, which will alter the trajectory of deficits and debt.
- Extending the 2017 Trump tax cuts would push deficits higher in the CBO's models, while spending cuts and faster growth would make them lower.
Of note: In its economic projections, the CBO is quite a bit more restrained than the IMF, seeing 1.9% GDP growth this year, well below the Fund's 2.7%.
