IMF annual review on the US economy: GDP will grow by 2.5 per cent in 2015
The US economy will shrug off a slow first quarter to grow by 2.5 per cent this year, according to the International Monetary Fund's (IMF) annual review.
The IMF said it expects the US economy to bounce back from the first quarter when it shrank by 0.2 per cent, as this was due to bad weather, plummeting oil sector investment and a strike in one of its busiest ports.
And barring any negative shocks, the U.S. economy should be able to power towards three percent by 2016.
Four key risks to the US economy
- Strong dollar:
"The stronger dollar is impacting US growth and job creation, as well as weighing on inflation. If the U.S. currency were to appreciate markedly, that could create concerns, including in some emerging market economies, and the potential for a rise in global imbalances."
- Early interest rate rise:
The Washington-based organisation warned against an early interest rate hike by the Federal Reserve, saying it should hold rates at the their level into the first half of 2016, before gradually rising thereafter.
Current data suggests that the central bank should hold rates at the their level into the first half of 2016, before gradually rising thereafter.
"Regardless of the timing, higher US policy rates could still result in significant market volatility and financial stability consequences that go well beyond US borders."
- Pockets of financial risk:
"At this point, the data suggests a system that has pockets of vulnerabilities rather than one containing broad-based financial excesses. Nevertheless, the report noted that these vulnerabilities cannot be ignored."
- Fiscal policy:
The IMF said that the inability of congress and the executive to collectively pass a budget and corresponding bills creates fiscal uncertainty that is damaging to the US economy.
"A government shutdown or a standoff linked to the federal debt ceiling … represent important and avoidable risks to growth and job creation that could move to the forefront, once again, in 2015.
It also warned public finances are on an unsustainable path and called for measures such reforms to the tax system, a pension reform, and steps to cut the growth in public healthcare costs.