Although the U.S. economy is sapped by a string of unfavorable factors in the first quarter, a continued expansion momentum remain in place, the International Monetary Fund (IMF) said on Tuesday.

IMF
IMF

The Washington-based lender forecasted that the U.S. economy will grow 2.5 percent in 2015. Stronger growth over the next few years is expected to return output to its potential before it begins steadily declining to two percent over the medium term.

A solid labor market, accommodative financial conditions and cheaper oil should support a more dynamic path for the remainder of the year. Despite this, the weaker outcome in the first few months of this year will unavoidably pull down 2015 growth, the IMF said after concluding its annual check-up of the U.S. economy
Inflation pressures remain muted. When combined with the dollar appreciation and cheaper energy costs, inflation is expected to rise slowly staring later in the year, reaching the Federal Reserve’s two percent medium-term objective by mid 2017.

Long-term unemployment and high levels of part-time work both point to remaining employment slack, and wage indicators on the whole have shown only tepid growth, IMF said.

“An important risk to growth is a further U.S. dollar appreciation,” it noted. The real appreciation of the currency has been rapid, reflecting cyclical growth divergences, different trajectories for monetary policies among the systematically important economies, and a portfolio shift toward U.S. dollar assets.

Lower oil prices and increasing energy independence have contained the U.S. current account deficit, despite the cyclical growth divergence with respect to its main trading partners and the rise in the U.S. dollar. Nevertheless, over the medium term, at current levels of the real exchange rate, the current account deficit is forecast to widen toward 3.5 percent of GDP.

The IMF stressed that addressing long-standing issues of public finances and structural weaknesses are important policy priorities in the period ahead. It said the decisions on interest rate increases should remain data-dependent, considering a broad range of indicators and carefully weighing the trade-offs involved. Enditem

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