SAO PAULO, June 18 (Reuters) - The International Monetary Fund has cut its forecast for U.S. economic growth and warned Washington and debt-ridden European countries that they are “playing with fire” unless they take immediate steps to reduce their budget deficits.
The IMF, in its regular assessment of global economic prospects, said bigger threats to growth had emerged since its previous report in April, citing the euro zone debt crisis and signs of overheating in emerging market economies.
The Washington-based global lender forecast that U.S. gross domestic product would grow a tepid 2.5 percent this year and 2.7 percent in 2012. In its forecast just two months ago, it had expected 2.8 percent and 2.9 percent growth, respectively.
With regard to the global economy overall, the IMF struck a measured tone, saying the slowdown of recent months should be “temporary.” It trimmed its forecast for global growth this year only slightly, to 4.3 percent from 4.4 percent, and maintained its estimate for robust Chinese growth of 9.6 percent despite recent signs of a slowdown there.
Yet that relatively benign global outlook could quickly fall apart if politicians in the United States and Europe do not start showing more leadership in addressing their countries' debt problems, the fund warned.
“You cannot afford to have a world economy where these important decisions are postponed, because you're really playing with fire,” said Jose Vinals, director of the IMF's monetary and capital markets department.
“We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis,” he said in an interview in Sao Paulo, where the updates to the IMF's World Economic Outlook and Global Financial Stability Report were published.
In the United States, the political problems include a fight over raising the legal ceiling on the nation's debt. A first-ever U.S. default would roil markets, and Fitch Ratings said even a “technical” default would jeopardize the country's AAA rating. The IMF said the outlook for the U.S. budget deficit this year has improved somewhat due to higher-than-expected revenues. In a separate report, it forecast a deficit of 9.9 percent of GDP -- better than the deficit of 10.8 percent of GDP it foresaw in April, but still near historic highs. |
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