The IMF projected on Monday the US would make a “solid” recovery from recession in the middle of next year, but warned of major risks, including the real-estate crisis and rising interest rates.
In its annual report on the world’s biggest economy, the IMF projected US GDP would shrink at an annualized rate of 2.5 percent this year and post modest 0.75 percent growth next year.
The outlook was better than the IMF April forecasts of a 2.8 percent contraction this year, followed by flat growth next year.
“The staff’s outlook remains for a gradual recovery” followed by a “solid recovery projected to emerge only in mid-2010,” the Washington-based multilateral institution said.
The IMF estimates were less rosy than the latest US official figures. The US Federal Reserve on May 20 estimated the economy would contract between 1.3 percent and 2.0 percent this year in the worst downturn in decades and grow at a modest pace between 2.0 percent and 3.0 percent next year.
At a news conference, John Lipsky, the IMF No. 2, criticized US President Barack Obama’s budget plan for fiscal year 2010, which begins in October, saying the projected reduction in the public debt ratio to GDP was based on “relatively optimistic” economic assumptions.
“Our estimate suggests that significant additional measures will be needed over time to ensure that these long-term targets are met,” the IMF deputy managing director said.
Lipsky said that US growth would depend in part on recovery from the global downturn.
“The recovery is going to be broad-based, but it is going to be sluggish,” he said, adding that the IMF forecasts no return to trend growth in the advanced economies “until late next year.”
The IMF said that recent US economic indicators were signaling a slowing pace of deterioration, especially in the labor and housing markets which are key to economic recovery and stability.
However, “the combination of financial strains and ongoing adjustments in the housing and labor markets is expected to restrain growth for some time,” it said.
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