IMF reduces US economic growth forecast

WASHINGTON — The International Monetary Fund on Tuesday lowered its estimates for US economic growth for this year and next, and urged policy makers to do more to help the housing sector and support the tepid recovery.

In its annual assessment of the US economy, the fund also had a sharp warning for Washington: avoid the fiscal cliff at the end of the year, when the Bush-era tax cuts expire and mandatory spending cuts across the government come into effect. The sudden shock could be enough to put the country back into recession, the fund warned, with global repercussions.

In a news conference, Christine Lagarde, the fund’s managing director, also said that Congress should ‘‘promptly’’ raise the debt ceiling to avoid spooking the global debt markets and raising the country’s borrowing costs.

The government is expected to hit its statutory borrowing limit late in 2012.

Should policy makers fail to lessen the end-of-the-year fiscal blow and raise the debt ceiling, ‘‘the domestic effects would be severe, with negative spillovers to the rest of the world,’’ warned Lagarde.

The fund cut its estimates of US growth to 2 percent in 2012 and 2.3 percent in 2013 in the report. In April, it had estimated growth of 2.1 percent in 2012 and 2.4 percent in 2013.

Other government and private forecasters have done the same recently.

On Tuesday, for instance, Macroeconomic Advisers, a respected private economic consulting firm, cut its estimate of the current pace of economic growth to an annual rate of 1.5 percent per year, down from 2.6 percent in early April. And last month, the Federal Reserve lowered its estimate of 2012 growth, to a range of 1.9 percent to 2.4 percent, from a range of 2.4 percent to 2.9 percent as projected in April.

The fund cited numerous reasons for the slowdown. The need for households to pay down their debts has cut into consumer spending and reduced economic demand. Job creation has slowed this year, and the unemployment rate remains seriously elevated.

The fund applauded recent efforts to support the housing market.

But it said that Washington should do more. Specifically, it said that the government should support broader refinancing, and that Fannie Mae and Freddie Mac — the government-sponsored mortgage finance giants — should allow principal reduction. The Obama administration has backed the idea, but top housing finance regulators have resisted it.

Source



Categories: Economic Exploitation, Economy, Government, Media & Culture, Political Cartoons, Reactionary Watch, Statements, U.S. News, Workers Struggle

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