WASHINGTON, July 23 (Reuters) - The International Monetary Fund on Wednesday said it expects the U.S. economy to grow even more slowly this year than it predicted a month ago due to weakness in the first quarter.
The IMF said the world's largest economy should grow 1.7 percent in 2014, below its June prediction of 2 percent growth.
U.S. GDP contracted at a 2.9 percent annual pace in the first three months of the year, dragged down by a weak housing market, a slower pace of restocking by businesses and lower exports. It was the sharpest decline in five years.
The IMF said U.S. activity should pick up to a rate of 3 percent to 3.5 percent for the rest of the year, and stay at 3 percent next year and in 2016.
"Still, the drag on growth from the first quarter contraction will not be offset," IMF staff said in their yearly analysis of the U.S. economy.
The lower expectations for growth should contribute to continued slack in the labor market for the next three to four years, with the United States remaining below full employment until 2018, it added.
As long as inflation and financial stability concerns remain subdued, the IMF said the U.S. Federal Reserve could keep its benchmark interest rates at zero beyond the middle of 2015. The IMF said views among policymakers at the U.S. central bank appeared centered around mid-2015 for a rate hike.
The IMF also warned that as the U.S. population ages, the economy would not be able to grow above 2 percent in the longer-term without significant reforms, including tax and immigration changes, more investment in infrastructure and job training, and the provision of childcare assistance, which could help lure more Americans into the workforce.
For the first time in several years, it also focused on the deep pockets of poverty within the United States, which afflicts a quarter of American children. It urged the United States to expand the earned income tax credit to all poorer workers and boost the minimum wage, which together should help poor people without a huge dent to the government's budget.
"We do think (poverty) is macro-relevant, we do think it's important for growth, and both economic and social sustainability in the United States," Nigel Chalk, deputy director of the IMF's Western Hemisphere Department, told reporters.
(Reporting by Anna Yukhananov; Editing by Paul Simao)