An IMF report said Monday it may reduce its US economic growth forecasts because plunging share markets in the US raised a new threat to the budding recovery.
"While the outlook is still broadly favorable, the downside risks have intensified," the IMF said..
Real gross domestic product for the US is forecast to rise from 2.5 percent this year to 3.25 percent next year, the report said.
"However, recent data releases and other developments, including the sharp decline in equity prices in recent weeks, have exacerbated the downside risks to the outlook for both personal consumption and business investment. The likelihood, therefore, is that downward revisions to the growth projections would be made in the context of the forthcoming World Economic Outlook," the report said.
The full report will be released in September
IMF directors said in an accompanying assessment that turbulent financial markets had increased the level of uncertainty surrounding the US economic outlook.
"Growth has already moderated from the rapid pace set in early 2002, but the recovery, although now likely to be weaker, is expected to be sustained as business investment rebounds, consumer spending continues at a solid pace, and productivity growth remains robust. However, the recent weakness of equity markets, which has been exacerbated by corporate accounting scandals, could pose a risk by undermining consumer and business confidence," they said.
The underlying strength of corporate profits and investment is uncertain, IMF directors said.
They are concerned about the bulging deficit in the US current account -- a wide measure of trade in goods and services and capital flows. They conceded that most of the expansion of the US current account deficit, which amounted to US$112.5 billion in the January-March quarter alone, reflected the effects of foreign investment in the US.
But they warned that the current account deficit would have to adjust at some point in the future.
IMF directors urged the US authorities to focus on disciplined fiscal policies, reforms of corporate governance and accounting and strengthened US leadership in trade and agricultural policies.
They expressed concern about the "considerable deterioration" in the medium-term fiscal outlook. The White House has predicted a federal budget deficit of US$165 billion for this year.
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