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IMF cuts US growth forecast to 2.7pc

Washington, June 15, 2013

The International Monetary Fund (IMF) cut its US growth forecast for 2014 to 2.7 per cent yesterday, saying the economy is being held back by "excessively rapid and ill-designed" government spending cuts.

The severe sequester cuts, aimed at closing the US deficit, are already taking up to 1.75 percentage points from this year's growth potential.

And even though growth will pick up pace in 2014, it will still be less than the 3.0pc the IMF previously forecast, due to the impact of the sequester, which requires $109 billion to be sliced from spending in the coming fiscal year.

In its annual report on the US, the IMF called on Congress to repeal the sequester, saying that stronger growth in the short-term is important both for the US and global economies.

"The automatic spending cuts not only exert a heavy toll on growth in the short term, but the indiscriminate reductions in education, science, and infrastructure spending could also reduce medium-term potential growth," the IMF said.

The sequester cuts for this year have had one beneficial outcome, cutting the fiscal deficit by a huge 2.5pc.

But that is likely too much in a short period.

"The deficit reduction in 2013 has been excessively rapid and ill-designed," it said.

"A slower pace of deficit reduction would help the recovery at a time when monetary policy has limited room to support it further," the IMF said.

Despite encouraging a looser fiscal stance now, and despite the narrowing of the fiscal gap, the IMF still warned that Washington needs to do more to address its longer term fiscal imbalances.

With the economy picking up, gross US government debt was projected to peak at 110pc of GDP in 2015 and start to decline. "But the longer-term debt profile remains unsustainable," the report said.-Reuters




Tags: US | growth | IMF |

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