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IMF reduces its forecast for US economic growth this year

WASHINGTON – The International Monetary Fund is downgrading its forecast for the U.S. economy this year and warns that political discontent threatens global growth.

The IMF on Tuesday cut its estimate for U.S. economic growth in 2016 to 1.6 per cent from the 2.2 per cent it had predicted in July. The American economy grew 2.6 per cent in 2015.

The fund’s dimmer outlook for the U.S. occurs even as the Federal Reserve is thought to be preparing to raise interest rates in December.

The U.S. economy has been sputtering since late last year. The main culprit is weak business investment. The fund blames the U.S. investment drought on cutbacks in the energy industry, a strong dollar that’s depressing exports and “policy uncertainty” surrounding the November elections.

The IMF says weakness in the U.S. is offset by improving prospects among developing economies. Commodity prices have stabilized after last year’s free fall, which badly damaged developing countries that export raw materials such as iron ore and copper. The fund left unchanged its forecast for overall global growth this year at a lacklustre 3.1 per cent.

“Global growth remains weak,” said IMF chief economist Maurice Obstfeld.

The IMF warns that populist discontent — reflected in Britain’s vote in June to leave the European Union and the rise of Donald Trump in the United States — could cause countries to retreat from global trade, weakening worldwide growth.

The fund increased its forecast for India to 7.6 per cent growth, fastest among the world’s major economies. And it upgraded the outlook for Russia — though it still expects the Russian economy to contract 0.8 per cent this year as it contends with low oil prices and sanctions for its aggression in Ukraine. The IMF left unchanged its forecast for 6.6 per cent growth in China, the world’s second-biggest economy.

Pulled down by slower expected growth in the United States, the world’s advanced economies are expected to grow 1.6 per cent this year, down from the 1.8 per cent the fund forecast in July. But the IMF upgraded its forecast for Japanese growth to 0.5 per cent this year and for the 19 countries that use the euro currency to 1.7 per cent.

The fund’s outlook for the United States is a bit gloomier than other private forecasts. Members of the National Association for Business Economics, for example, expect the U.S. economy to grow 1.8 per cent.

The Fed has signalled that it is likely to raise U.S. interest rates at its December meeting. Investors put the likelihood of a December rate hike at 58.9 per cent, according to figures from the CME Group.

The American labour market has remained solid despite unimpressive economic growth. Employers have added a healthy 204,000 jobs a month the past year, and the unemployment rate is at 4.9 per cent, close to what economists consider full employment.

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AP Economics Writer Martin Crutsinger contributed to this report.