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IMF forecasts recession for the US

"It's a difficult quarter and we'll see what we finally produce." US Treasury SecretaryPaul O'Neill PHOTO: AFP

The IMF said the US economy would experience a "mild recession" in the second half of this year -- the first official forecast of two straight quarters of contraction in the current economic slowdown.

However, the IMF also predicted Saturday that the economy would recover and strengthen next year.

Horst Koehler, the IMF managing director, issued a statement with further details of last week's revised estimates that predicted sharply lower growth next year for the US economy, the world's largest.

The revised estimates took into account the impact of the Sept. 11 terrorist attacks that destroyed the World Trade Center and damaged the Pentagon, exacerbating an existing economic downturn by devastating the travel industry.

"The United States is now expected to experience a mild recession in the second half of 2001, followed by a recovery which strengthens through 2002," Koehler's statement said.

The US economy dipped into negative territory in the July-September quarter, declining at an annual rate of 0.4 percent.

Many analysts believe the contraction is accelerating in the current quarter, exacerbated by the thousands of layoffs in the wake of the Sept. 11 attacks.

US Treasury Secretary Paul O'Neill, attending a meeting of G20 finance ministers here with Koehler, said Saturday he disagreed with the revised IMF estimates.

"It's a difficult quarter and we'll see what we finally produce," O'Neill told a news conference.

In an earlier statement, he said the ``fundamental strengths of the US economy -- our strong macroeconomic foundations and our dynamic and flexible labor and capital markets -- remain intact.''

On Thursday, the IMF sharply reduced its estimate for US economic growth next year and urged quick passage of an economic stimulus package to restore confidence. O'Neill said then he rejected the IMF assessment as too negative, but added he supported quick passage of a stimulus bill making its way through Congress.

The IMF put next year's US growth rate at 0.7 percent, compared with a 2.2 percent forecast in October that was based on estimates made before the Sept. 11 attacks. The revised rate would be the country's weakest performance since the last recession in 1990-1991.

The IMF also cut its forecast for Japan, the world's second-largest economy, predicting it would contract by 0.9 percent this year and 1.3 percent next year. The October forecast had Japan's economy declining by 0.5 percent this year, but growing by 0.2 percent next year.

As a result of revisions for the US and Japan, the IMF lowered its expectations for global growth to 2.4 percent for this year and next.

Many economists believe that any global rate below 2.5 percent constitutes a worldwide recession, given that increased economic output is not sufficient to handle an expanding population.

Last month, the IMF had put global growth at 2.6 percent for this year and 3.5 percent for next year.
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