The International Monetary Fund (IMF) has slashed its growth outlook for the world’s No. 1 and No. 5 economies, citing political pressures and fiscal uncertainty in its evaluation of the next two years.
U.S. Outlook Cut as Fiscal Stimulus Remains Elusive
After a dismal first half of 2017, the U.S. economy is projected to grow just 2.1% in 2017, the IMF said in its widely watched World Economic Outlook. That’s down from the April estimate of 2.3%. The forecast for 2018 was also reduced to 2.1% from 2.5%.
The Washington-based lending institution cited contradicting policies as one of the main reasons for the downgrade. It also looks like President Trump’s fiscal stimulus proposals won’t get off the ground anytime soon.
U.K. Faces Brexit Barrier
The United Kingdom’s path out of the European Union became murkier last month after Prime Minister Theresa May failed to build on her parliamentary majority in a snap election. The result knocked the Conservatives eight seats back of a majority, forcing the party to join forces with Northern Ireland’s Democratic Unionists.
It’s precisely this uncertainty that triggered a downgrade of the U.K.’s economic fortunes. The economy is now seen growing just 1.7% this year compared to the April forecast of 2%. The Fund maintained its 2018 outlook of 1.5% growth.
Brexit remains a highly contentious subject for the U.K. – one that is unlikely to be resolved anytime soon.
Fund Managers Monitoring Financial Risks
Fund managers have been complaining for months now that U.S. stocks are the most overvalued in the world. According to a monthly survey from Bank of America Merrill Lynch, a net 80% of fund managers are underweight U.S. equities. That’s down only slightly from the 84% who indicated the same in June. This makes the IMF’s latest downgrade of the U.S. economy especially concerning.
At the same time, the Fund maintained a generally positive outlook on global growth. It also raised its forecasts for China, Japan and the Eurozone, reflecting a solid first half of the year.