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IMF More Upbeat About US Growth 10/15 06:09
WASHINGTON (AP) -- The U.S. and global economies will grow a bit more this
year than previously forecast as the Trump administration's tariffs have so far
proved less disruptive than expected, the International Monetary Fund said
Tuesday, though the agency also said the extensive duties still pose risks.
The United States' economy will expand 2% in 2025, the IMF projected in its
influential semiannual forecast, the World Economic Outlook. That is slightly
higher than the 1.9% forecast in the IMF's last update in July and 1.8% in
April. The U.S. should grow 2.1% next year, also just one-tenth of a percent
faster than its previous projection, the IMF said.
Its current forecasts are still down from a year ago, however, a sign that
the international lending agency expects the tariffs to weaken the U.S.
economy, in part by creating more uncertainty for businesses. Last October, the
IMF forecast the U.S. would grow 2.2% this year.
All the projections also represent a slowing from 2024, when the U.S.
economy expanded at a faster 2.8%.
The global economy, meanwhile, will grow 3.2% this year, up from a 3%
estimate in July, the IMF forecast, and 3.1% in 2026, the same as its previous
estimate.
While the U.S. and world economies have fared better than expected, it's too
soon to say they are fully in the clear, the IMF said, as Trump has continued
to make tariff threats and it can take time for changes in international trade
patterns to play out.
On Friday, for example, Trump threatened to slap 100% duties on all imports
from China, which caused a sharp fall in the stock market.
IMF chief economist Pierre-Olivier Gourinchas said at a news conference that
the import taxes and ongoing threats to impose more duties have created ongoing
uncertainty for many businesses and are weighing on the world economy.
"The tariff shock is here, and it is further dimming already weak growth
prospects," he said.
Gourinchas also said that a burst of investment in artificial intelligence,
in the form of huge data centers and extensive computing power, has helped
offset the drag from trade and boosting the U.S. economy. Yet if a financial
market bubble formed and then burst, it could sharply slow business investment
and consumer spending, he said.
"There are echoes in the current tech investment surge of the dot-com boom
of the late 1990s," he said. "It was the internet then, it is AI now."
Shares of two companies active in the AI sector, AMD and Oracle, which
announced an expanding partnership Tuesday, have seen their shares rise 80%
this year.
Gains in AI-related stock values have lifted Americans' wealth and fueled
consumer spending, Gourinchas said, just as companies are ramping up their
investments in advanced computer chips and building data centers. Hotter
spending and investment could push central banks to raise interest rates over
time, he said.
Gourinchas also offered several reasons the U.S. and global economies have
remained resilient after the widespread imposition of tariffs earlier this year.
"First and foremost, the tariff shock itself is smaller than initially
feared, with many trade deals and exemptions," he said. "Most countries also
refrained from retaliation, keeping the trading system open. And the private
sector also proved agile, front-loading imports and rerouting supply chains."
By front-loading imports, many U.S. companies were able to stock up on goods
before the duties took effect, enabling them to avoid or delay price increases.
Yet many of those factors only reflect "temporary relief, rather than
underlying strength in economic fundamentals," the IMF's report said.
The IMF also said that import price data in the U.S. shows that so far
importers and retailers are paying most of the tariffs, not overseas companies,
as many Trump administration officials have predicted. Over time, those firms
are likely to pass on more of the price hikes to consumers, the report said.
There are signs that some downsides of the higher tariffs are starting to
emerge, the IMF outlook said. Core inflation, which excludes the volatile food
and energy categories, has ticked up to 2.9%, according to the Federal
Reserve's preferred measure, up from 2.7% a year ago. Hiring has ground to
nearly a halt, which could partly reflect a more cautious approach by many
firms in the wake of the uncertainty created by the higher tariffs.
The IMF's forecasts are modestly more optimistic than many private-sector
economists' expectations. The National Association for Business Economics, a
group of academic and business economists, on Monday forecast that the U.S.
would grow just 1.8% this year and 1.7% in 2026.
Nearly two-thirds of the economists surveyed by the NABE said they think the
administration's duties are nevertheless slowing growth, by up to a
half-percentage point.
China, meanwhile, has weathered the hit from U.S. tariffs by sending more of
its goods to Europe and Asia, rather than the United States, the IMF said. Its
currency has depreciated, which has made its exports cheaper. The IMF is
forecasting that China's economy will expand 4.8% this year and 4.2% in 2026,
the same as in July.
Gourinchas said that China's economy has grown increasingly dependent on
exports, while its real estate sector continues to struggle under heavy debt
loads.
"It is increasingly hard to see how this could be sustained," he added.
In Europe, Germany is bolstering growth by increasing government spending to
build up its military, Gourinchas said. The IMF now expects the 20 countries
that use the euro to grow 1.2% this year, up from a 1% forecast in July, and
1.1% next year, the same as three months ago.
The IMF is a 191-nation lending organization that works to promote economic
growth and financial stability and to reduce global poverty.
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