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IMF says Trump's proposed fiscal policy "counterproductive"

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The International Monetary Fund (IMF) said on Thursday that the Trump administration's proposed expansionary fiscal policy would be "counterproductive" at this stage of the economic cycle, reported Xinhua News Agency (China).

"With the economy so close to full employment any fiscal impulse at this juncture is unadvisable and will almost certainly lead to a steepening of an already-unsustainable federal debt-GDP path," the IMF staff said in its annual report of Article IV consultations with U.S. authorities on the U.S. economy.

They also warned that an expansionary fiscal policy in the United States would lead to "an even more overvalued U.S. dollar, a more accelerated path of monetary policy normalization, and growing global current account imbalances."

The Trump administration has proposed large tax cuts and infrastructure spending to provide short-term stimulus to the economy, but many policy details are undecided.
The IMF suggested the Trump administration should "put in place a plan for fiscal consolidation" that raises the federal primary surplus by 2.5 percent of GDP over the next several years.
"This adjustment can be phased in gradually but ought to begin in 2018 to ensure that the federal debt-GDP ratio falls over the medium term," the report said.

Based on the assumption of unchanged policies, the IMF expected the U.S. economy to grow at 2.1 percent this year and next, supported by solid consumption growth and a rebound in investment.
The IMF believed the Trump administration is unlikely to accelerate annual U.S. economic growth to sustained 3 percent from 1.6 percent last year, "even with an ideal constellation of pro-growth policies."

"The international experience and U.S. history would suggest that a sustained acceleration in annual growth of more than 1 percentage point is unlikely," the report said.
The U.S. economy grew at an annual rate of 1.4 percent in the first quarter of this year. The U.S. Commerce Department is expected to release its first estimate of the second-quarter GDP on Friday.

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