Due to a weak first quarter, U.S. economic growth is now projected at 2 percent for 2014, rising to 3 percent in 2015, the International Monetary Fund (IMF) reported on Monday.
In the early part of this year, as a harsh winter conspired with other factors -- including inventory drawdown, a still-struggling housing market and slower external demand -- momentum faded in the U.S economy, the report said.
Recent data, however, suggest a meaningful rebound in activity is under way, and growth for the remainder of this year and 2015 should well exceed potential, it said.
As the U.S. economy strengthens, the current account deficit is expected to slowly widen with an increased demand for imports only partially offset by fiscal consolidation and improvements in the trade balance that are linked to rising self-sufficiency in energy, it said.
Despite the cyclically adjusted current account being somewhat on the weaker side, the U.S. external position appears broadly consistent with medium-term fundamentals and desirable policies, the report said.
U.S. job growth has been healthy, but labor markets are weaker than is implied by the headline unemployment number: long-term unemployment is high, labor force participation is well below what can be explained by demographic factors, and wages are stagnant, it said.
With better growth prospects, the United States should see steady progress in job creation, it said. However, headline unemployment is expected to decline only slowly, in part because improving prospects will draw discouraged workers back into the labor force, and long-term unemployment will take time to fall to historic levels, it said.
In the longer term, potential growth is forecast to average around 2 percent for the next several years, below both historic averages and the outlook assessed at the last Article IV consultation.
A combination of factors is at work in lowering longer-run growth including the effects of population aging and more modest prospects for productivity growth, the report said.
"This puts a significant premium on taking immediate steps to raise productivity, encourage innovation, augment human and physical capital, and increase labor force participation," it said.
"Such measures should involve investments in infrastructure and education, improving the tax system and active labor market policies. They may also include reaching agreement on a broad, skills-based approach to immigration reform (to expand the labor force, raise average labor productivity and support medium-term fiscal adjustment) as well as fully capitalizing on the gains from rising U.S. energy independence while protecting the environment (including by removing existing restrictions on U.S. oil exports)."