“Recent indicators point to a sharper than expected slowdown in economic activity in the second quarter,” IMF experts said in a report issued following annual consultations with American officials.
“This reflects weakness in inventory accumulation and net exports as well as slower private consumption growth as suggested by retail sales in June.”
The pullback in consumer spending poses a sharp drag on growth as it fuels about two-thirds of activity in the world’s largest economy.
The US government is set to release its first estimate of gross domestic growth for the second quarter on Wednesday.
First-quarter GDP growth was at a tepid annual rate of 1.8 percent as the economy still struggles to recover from the Great Recession that ended four years ago.
The IMF reiterated its warning that downside risks dominate, pointing to payroll tax increases in January and the sharp “sequester” spending cuts that began in March as slowing economic growth.
The IMF board of directors “generally concurred that the fiscal deficit reduction in 2013 is excessively rapid, and that the automatic spending cuts (‘the sequester’) not only reduce growth in the short term but could also lower medium-term potential growth,” the report said.
The sharp US fiscal tightening was expected to keep growth “subdued” at 1.7 percent this year, the IMF said, projecting 2014 growth would pick up to 2.7 percent “as the fiscal drag subsides and the negative legacies of the financial crisis wane further.”
The government’s fiscal policies are expected to shave between 1.50 and 1.75 percentage points from growth this year, it said.
The US Federal Reserve has a decidedly brighter view of the economy’s trajectory. The central bank has estimated 2013 growth between 2.3 percent and 2.6 percent, which would accelerate in 2014 to 3.0-3.5 percent.
The IMF said the Fed’s highly accommodative policy remained “appropriate” given the slack growth and tame inflation expectations.
The Fed has signaled it could begin to wind down its open-ended $85 billion-a-month asset-purchase program in the coming months if the economy continued to improve.
Both staff and the US authorities agreed that effective communication would be critical, the IMF said.
“In the event that domestic conditions deteriorate or global financial turmoil intensifies, staff suggested that the Fed could provide further stimulus by adjusting the asset purchase program.”