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Sat, Apr 07, 2007 - Page 10 News List

US set to avert recession, global economy okay: IMF


The US will overcome a housing slowdown and avert recession, while the rest of the global economy is in sound health, the IMF said on Thursday.

"The message here is reassuring: we do not think the US is heading for recession," the IMF's new chief economist, Simon Johnson, told a news conference.

Johnson acknowledged the housing slowdown underway in the world's largest economy, "but we're not seeing it spread beyond residential construction."

Canada and Mexico could feel some effects from the US housing market, "but it won't spill over to the broader global economy," the economist said.

"If the United States sneezes, you should worry about other parts of the world catching cold. But at the moment, other parts of the world are healthy," he added.

"The US economy has also been taking its vitamins. While there are problems in one important sector and a couple of regions of the United States, overall the economy is very healthy," he said.

Johnson was speaking after the release of a portion of the IMF's semi-annual report World Economic Outlook. The full report, with projections for global growth, is to be released next week just ahead of the Fund's annual spring meeting.

The IMF report said that some of the world's economic imbalances could be corrected as the dollar's value declines. The massive US trade gap -- of US$763.6 billion last year -- is among key concerns for finance officials as surpluses and currency reserves mount in countries such as China.

The IMF concluded that "a real US dollar depreciation of less than 10 percent could bring about a one percent of GDP narrowing in the US trade deficit."

The US account deficit is already looking better, Johnson said. "It looks like that part of the global imbalances has turned the corner."

In another section, the report said the "effective global labor force" has risen fourfold over the past two decades, reflecting population growth and the increasing integration of China, India, and the former Eastern bloc.

But the report appeared to acknowledge that globalization has pushed down wages in wealthy countries, especially in European countries and among unskilled workers.

"Looking ahead, it is important to maximize the benefits from labor globalization and technological advancements, while working to address the distributional impact of these ongoing changes," it cautioned.

Up to now, the Federal Reserve said, the US economy remained on track for moderate growth this year despite a severe slump in housing, although some data suggested a softening of business investment.

The Fed predicted a US GDP growth in a range of 2.5 to 3 percent this year, compared to 3.3 percent last year.

"We think the US is going to bounce back pretty quickly," Johnson said, adding: "The US is a significant part of the [global[ economy ... but it's not by any means the whole story. "The contribution of China and India and other emerging markets is definitely positive."

The report said any slowdown in the US economy "can exert spillovers" in advanced and developing countries, especially to those with strong trade ties to the US.

But "with the US slowdown to date largely driven by the cooling domestic housing market, spillovers to growth elsewhere have been limited," it added.

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