US dollar may be up to 20% overvalued, IMF says

The outlook for the US economy was positive even as it entered its seventh consecutive year of expansion, despite recent setbacks and the possibility that the US dollar might be substantially overvalued, the International Monetary Fund said.

As well, the country needed to tackle several policy challenges in order to secure future growth, IMF managing director Christine Lagarde said in remarks prepared for delivery during the press conference following the release of the Fund's annual Article IV consultations with the US.

"The United States economy is, overall, in good shape. [...] Inflation remains contained, and the US economy has repeatedly demonstrated its resilience in the face of financial market volatility, a strengthening dollar, and subdued global demand," the Fund's economists said in the Article IV's concluding statement.

US gross domestic product was expected to grow by 2.2% in 2016 and by another 2.5% in 2017.

Furthermore, the rate of unemployment had fallen to 4.7%, household net worth was close to its pre-crisis peaks and inflation was contained, the IMF said.

The Washington-based lender attributed weakness in GDP over recent quarters to the continued contraction of investment in the energy sector.

However, the IMF also projected that at then current exchange rates the US current account deficit would rise above 4.0% of GDP by 2020, which by its analysis pointed to an overvaluation in the US dollar of between 10.0% to 20.0%.

Looking to the medium-term, and during her press conference, Lagarde said the US needed to adress challenges in four areas: mitigating the impact of an ageing population by tackling the fall in the size of the labour force, reverting the decline in labour productivity, avoiding income inequality and adressing the increasing share of the population living in poverty.

Some of the other measures recommended by the Fund's economists included increasing state and federal infrastructure investment, reforming corporate income taxes, ratifying the Trans Pacific Partnership, concluding a trade and investment treaty with Europe and resisting all forms of protectionism.