WASHINGTON: The International Monetary Fund warned the United States on Wednesday over poverty and rising inequality in the country, saying both could hold back its economic potential.

The IMF cut its outlook for US economic growth this year to 2.2 per cent, compared to 2.4pc forecast at the beginning of the year. It cited the impact of slower global growth overall, the contraction in the energy industry due to low oil prices, and a slowdown in domestic consumer spending.

The Washington-based global crisis lender said the US economy is in “good shape” generally, growing more strongly than other leading advanced economies, with unemployment at a nearly nine year low and inflation in check.

One out of seven people are living in poverty in the country

The world’s largest economy “has repeatedly demonstrated its resilience in the face of financial market volatility, a strengthening dollar, and subdued global demand,” the report said.

Yet it identified stark trends that it said will slowly choke off avenues to future growth if not addressed soon, particularly a very high level of poverty for a rich country and increasing inequality.

The IMF said the ageing of the US population, with a surge of baby-boomers moving into retirement, is combining with a troubling stall in productivity gains and lack of investment in workers and physical capital to present a new challenge to the economy.

On top of that, it said the growth of inequality and persistence of high poverty would exacerbate those trends.

It noted that 46.7m Americans — one out of seven people — are living in poverty, including 20pc of all children. Working Americans’ share of all income in the country has fallen by 5pc in 15 years, and the middle class is the smallest it has been in three decades.

The polarisation in income distribution, the Fund said, has effectively cut consumer demand by 3.5pc since 1999 — the equivalent of losing one year’s consumer spending out of 15. That trend will only further crimp the economy, said 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,” she said in a statement.

“Our assessment is that, if left unchecked, these four forces — participation, productivity, polarisation, and poverty — will corrode the underpinnings of growth (both potential and actual) and hold back gains in US living standards.”

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