IMF cuts US growth forecast to 1.7%
Last IMF official forecast in Oct for US growth this year was 3.2%; Fed's estimate issued last week was 2-2.5%
[PALERMO, Italy]
The International Monetary Fund has slashed its forecast for economic growth in the United States this year to 1.7 per cent, Group of Seven sources said on Saturday. The forecast, which was circulated at a G-7 finance ministers' meeting in Sicily, is well below the IMF's last official forecast of 3.2 per cent published in October and below the Federal Reserve's official estimate of 2 to 2.5 per cent issued last week.
The IMF said the world economy will probably expand 3.4 per cent, compared with the September estimate of 4.2 per cent growth. The IMF recently indicated the US economy should slow towards growth of some 2 per cent this year, but was likely to escape a recession. But a forecast of 1.7 per cent for the year suggests the IMF may have doubts about the vigour of a US economic recovery in the second half of 2001.
Consensus forecasts of private economists for the US economy hover around 2 per cent.
At their meeting, the finance ministers and central bankers from the G-7 said the global economy will avoid recession, even as they called on the US and Japan to do more to ensure expansion.
"Global growth will be mainly good this year, though somewhat lower than we expected" when the G-7 ministers met last September in Prague, said Italian Treasury Minister Vincenzo Visco, who hosted the meeting.
American demand for products from Asia and Europe has cooled along with the US economy. The comments suggest the G-7 isn't worried that the slowdown, and a shrinking Japanese economy, will pull down the rest of the world.
"They're probably right, in the short term at least," said Andrew Milligan, head of strategy at Standard Life Investments in Edinburgh, which manages £80 billion ($117 billion) in assets. "It's clear that the US will recover in the second half of the year." Currencies, usually a major topic for the G-7, received only a brief mention in the statement released after the meeting in Sicily, suggesting the world's economic chiefs don't see the relative values of the yen, euro, and dollar threatening growth.
In their statement, the ministers "reiterated our view that exchange rates among major currencies should reflect economic fundamentals." They pledged to "continue to monitor developments closely and to cooperate in exchange markets as appropriate," language almost identical to that of past G-7 communiques.
Although growth in the US has slowed, the ministers and central bankers offered an upbeat assessment of prospects for the world's largest economy.
"We agreed that the fundamentals for sustained growth remain in place," Treasury Secretary Paul O'Neill said.
The G-7 called on American policymakers to use monetary and fiscal policy to boost growth, implicitly offering support for lower interest rates and tax cuts in the US. At the same time, the ministers warned neither should be overdone, calling on US officials to preserve "budgetary restraint and price stability." -- Reuters, Bloomberg
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