Print

Mail

wiki links

IMF says US deficit threatens growth

Record US budget and trade deficits under US President George W. Bush threaten to undermine investment and growth, the IMF said in its annual review of the world's largest economy.

The swelling budget deficit, projected by the White House to reach a record US$455 billion this fiscal year, "will make it even more difficult to cope with the aging of the baby-boom generation, and will eventually crowd out investment and erode US productivity growth," the IMF said.

The IMF's board of directors, which issued the report, urged the US to return to a balanced budget within five to 10 years. The report comes as Democratic rivals in the next year election year pressure Bush about swelling deficits and increasing joblessness.

The US had run surpluses from fiscal years 1996 through 2000, the longest spell of black ink since the Great Depression.

Rob Nichols, a spokesman for the US Treasury, disputed the findings, saying the US$330 billion tax cut approved this year would spur growth and create jobs.

"The US deficits -- while not welcome, and bear watching -- are manageable," Nichols said in a statement. The deficits "need to be reduced and they will be reduced by increasing our GDP growth."

The US economy grew at a 2.4 percent annual rate in the second quarter, the US Department of Commerce reported last week. That's up from 1.4 percent growth in each of the previous two quarters.

The US banking system has been "resilient" and balance sheets "appear to have held up well" during a recession that the fund described as "mild and short-lived," the report said. The IMF urged banks to be alert to the effects of "an eventual turnaround in interest rates or a possible cooling of real estate markets."

The report also said government-charted companies such as Fannie Mae, the largest source of mortgage funding in the US and Freddie Mac, the second largest source of US mortgage finance, should be held to the same standards as other publicly traded companies.

Some directors also said the Fed should state an inflation target, which may "ease concerns, about possible, albeit remote, deflation risks."

The IMF projects the US economy will grow 2.25 percent this year and 3.5 percent next year.

The report also urged the US to boost savings and bring its record current account deficit "to a more sustainable position."

The deficit in the US current account, the broadest measure of international trade because it includes investments, widened to a record US$136.1 billion in the first quarter, the Commerce Department reported in June.

The shortfall equaled 5.1 percent of gross domestic product, also the highest ever.
This story has been viewed 1571 times.