The International Monetary Fund issued a warning to the US with regard to poverty and increasing inequality in the nation on June 22nd, 2016. The two issues could impact its economic growth.
The IMF reduced its prospect for the US economic development this year to 2.2% compared to 2.4% estimated at the start of the year.
It mentioned the influence of moderate overall global growth, the reduction in the energy sector because of low oil prices, and a slowdown in domestic consumer expenditure.
Overall, the US economy is in good shape, rising strongly compared to other important developed nations, with unemployment at almost a nine-year low and inflation in control.
The biggest economy in the world has constantly proven its resilience in the face of market volatility, a bolstering dollar, and restrained global demand.
However, it recognized distinct trends that it said would gradually block avenues for future growth if not addressed at the earliest, especially an extremely high-level of poverty for a developed economy and growing inequality.
The IMF alleged a combination of several factors – the ageing of the US population, an increase in the no of people moving into retirement, decrease in productivity, and lack of investment present a new challenge to the US economy.
The IMF said, the progress of inequality and continuation of high poverty would aggravate those trends.
It further observed that 46.7 million people in the US are living in poverty. The share of the working class of all income in the nation has dropped by five percent in 15 years. The size of the middle class is the smallest in the last 30 years.
The divergence in the distribution of income has effectually cut consumer demand by 3.5 percent since 1999. The trend would impair both probable and actual growth.
According to IMF Managing Director Christine Lagarde, “Not only does poverty create significant social strains, it also eats into labor force participation, and undermines the ability to invest in education and improve health outcomes.”
The US must increase expenditure on education and infrastructure, and provide support to the economically weaker sections of the society (taxation reforms, improved social programs, a higher minimum wage) to reverse the trends.
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