WASHINGTON — The International Monetary Fund cut its forecast for U.S. economic growth this year, while the world economy is expected to expand 3.1 percent.
The IMF downgraded U.S. growth to 1.6 percent from its 2.2 percent forecast in July in its “World Economic Outlook,” released Tuesday.
The lower forecast was attributed to a “disappointing first half caused by weak business investment and diminishing pace of stockpiles of goods.”
Further increases in the Federal Reserve’s policy rate “should be gradual and tied to clear signs that wages and prices are firming durably,” the IMF said.
On a more positive note, the pace of U.S. growth is expected to increase next year to 2.2 percent, as “the drag from lower energy prices and dollar strength fades,” the report said.
Global growth, while expected to expand by 3.1 percent this year, is still “subdued,” the IMF said. It is projected to increase slightly to 3.4 percent next year.
“Taken as a whole, the world economy has moved sideways,” said IMF chief economist and economic counselor Maurice Obstfeld. “We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world.”
On the global trade front, trade in goods and services has grown by just over 3 percent a year since 2012, the IMF said. That is less than half of the average rate of expansion during the previous three decades.
“The slowdown in trade growth is remarkable, especially when set against the historical relationship between growth in trade and global economic activity,” the IMF said.
Between 1985 and 2007, real-world trade grew twice as fast on average as global gross domestic product. But in the past four years it has “barely kept pace,” the report noted.
“Such prolonged sluggish growth in trade volumes relative to economic activity has few historical precedents during the past five decades,” the IMF said.
It also warned that “persistent stagnation in advanced economies could further fuel antitrade sentiment, stifling growth.”
That may not bode well for the Obama administration, which has launched a last full-court press to get the 12-nation Trans-Pacific Partnership trade deal through in a lame duck session of Congress. The U.S. is also engaged in trade negotiations with the European Union on the Transatlantic Trade and Investment Partnership deal.
The TPP trade deal includes the U.S., Australia, Japan, Mexico, Canada, Vietnam, Malaysia, Peru, Singapore, Chile, Brunei and New Zealand and would encompass nearly 40 percent of the world’s GDP.
TPP faces many hurdles that have slowed its progress.
Democratic presidential candidate Hillary Clinton and Republican candidate Donald Trump have reiterated their strong opposition to TPP and both have now voiced opposition to a post-election vote on the pact.
Still, Obama and several cabinet members have joined forces with former officials and key business groups to garner support for TPP, which is seen as a potential component of Obama’s legacy.
Republican leaders in Congress, however, will have the final word on whether to bring the controversial trade deal up for a vote this year and both Senate and Republican leaders have expressed concerns about TPP and indicated the votes are not there to approve it.
Advanced economies are projected to expand 1.6 percent this year, less than last year’s 2.1 percent pace and down from the July forecast of 1.8 percent.
“It is vitally important to defend the prospects for increasing trade integration,’’ Obstfeld, said. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”
In Europe, a lot of uncertainty remains following the U.K.’s vote to leave the European Union in June. The U.K.’s growth is expected to slow to 1.8 percent this year and to 1.1 percent next year, down from 2.2 percent in 2015.
The IMF also expects the euro “area” to expand 1.7 percent this year and 1.5 percent in 2017, compared with 2 percent growth in 2015.
Meanwhile, growth in Japan, the third-largest economy in the world, is expected to “remain subdued” at 0.5 percent this year and 0.6 percent next year.
The one bright spot in the global economy appears to be in the emerging markets, among developing economies.
Growth is expected to accelerate for the first time in six years to 4.2 percent this year, which is slightly above the IMF July forecast of 4.1 percent. Next year also bodes well for emerging economies, according to the report, which are forecast to grow 4.6 percent.
But the IMF stressed that growth will “differ sharply” across countries and regions.
China, for example, will continue to shift toward consumption-driven growth and away from a reliance on investment and industry, a policy that is expected to “slow growth in the short term while building the foundations for a more sustainable long-term expansion,” the IMF said.
The world’s second-largest economy is forecast to grow 6.6 percent this year and 6.2 percent in 2017, down from 6.9 percent last year.
India’s growth continues to be “resilient” to the headwinds facing other countries, the report noted. The nation’s GDP is expected to expand 7.6 percent this year and next year, “the fastest pace among the world’s major economies,” according to the IMF.
In other regions of the world, sub-Saharan Africa’s largest economies “continue to struggle with lower commodity revenues, weighing on growth in the region,” while several countries in Latin America are “mired in recession” but are expected to begin recovering next year, the report said.