Uh-oh. The International Monetary Fund says the U.S. economy is losing momentum.
The IMF said the American economy will expand by only 1.6% this year, down from 2.6% in 2015. The latest forecast is 0.6 percentage points lower than what the fund predicted just three months ago.
The downgrade is mostly down to sluggish second quarter U.S. growth, the fund said in its latest World Economic Outlook.
The world’s largest economy grew by just 1.4% between April and June compared to the same period last year, according to U.S. government data. The performance was well below economist expectations.
“The U.S. economy has lost momentum over the past few quarters, and the expectation of a pickup in the second quarter of 2016 has not been realized,” the IMF said.
Growth in personal consumption, the main engine of the American economy, is strong thanks to low unemployment and higher wages.
But businesses are a problem — investment spending has now dropped for three consecutive quarters. The IMF said that the upcoming presidential election was also adding to uncertainty.
“Institutional arrangements long in place are now potentially up for renegotiation — arrangements that have shaped how businesses organize their production and hiring, sourcing of raw materials and financing, and distribution channels across borders,” the fund said.
The IMF said that global growth will also slow in 2016, prompting interest rates to stay lower for longer. It expects growth of 3.1% in 2016, down from 3.2% last year. The fund said growth will pick up slightly in 2017.
The fund blamed slower U.S. growth and the U.K.’s decision to leave the European Union for its grim outlook.
One bright spot will be emerging markets and developing economies, where the IMF expects growth to strengthen to 4.2% this year after five consecutive years of decline.
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