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To: Lucretius who wrote (117005)	8/14/2001 9:46:34 PM
From: GuitarMan	Read Replies (1) \| Respond to of 436258

IMF Warns US Tuesday August 14, 11:31 PM IMF warns US outlook uncertain in second half WASHINGTON, Aug 14 (AFP) - Global expectations of a US economic recovery in the second half of this year are now shrouded in uncertainty, IMF directors said in a report Tuesday. If US productivity fell far short of expectations, the US economy risked descending into an extended slowdown, taking the rest of the world with it, the International Monetary Fund said. Over the longer term, the United States faced a serious threat from its bulging current account deficit, which was unsustainable and threatened to send the dollar into a sharp fall, it added. "Directors agreed that at the present juncture, the uncertainty surrounding the economic outlook was higher than usual," the IMF executive board said in an annual review. The IMF bosses expressed concern that any prolonged US weakness was likely to be felt elsewhere, especially in economies that depended on the United States for exports. The US economy, which led a global slowdown late last year and was now feeling the secondary effects, could pick up in the second half or remain sluggish for an extended period, the Fund said. Which way the economy turned depended largely on consumer and business spending and the United States' ability to sustain the rapid productivity growth of the second half of the 1990s, the IMF said. US productivity jumped 2.5 percent in the second quarter, according to latest data. But the average rate of productivity growth from 1996 to 2000 was revised down to 2.5 percent from 2.9 percent. Higher US productivity also attracted foreign investment, however, aggravating the US current account, which was in a deficit of 109.6 billion dollars in the first quarter of this year. "Directors indicated that the size of the US current account deficit did not appear sustainable in the longer term and it raised concerns that the dollar might be at risk for a sharp depreciation, particularly if productivity proved disappointing," the IMF report said. "A sudden correction in the current account deficit was seen as possibly having an adverse effect on the United States and the rest of the world economy," the IMF directors said. But the evidence pointed to a "reasonably favourable" outlook for underlying productivity growth, they added. Disciplined fiscal policy, including further budget surpluses, would help to produce an orderly adjustment in the dollar and the current account deficit, the Fund said. The IMF bosses expressed concern about a decline in personal savings and a rise in household and corporate debt. "They cautioned that if productivity growth turned out to be far weaker than the growth rates experienced in the mid 1990s, the economic slowdown could be prolonged, adversely affecting household and business balances sheets," the report said. IMF directors welcomed the US Federal Reserve's aggressive stance of cutting US interest rates by 275 basis points in six moves since January, bringing the federal funds rate down to just 3.75 percent. The Federal Reserve is widely expected to cut again at its next meeting August 21. US President George W. Bush's tax cut, which returns 38 billion dollars in income tax refunds over 10 weeks, was timely and appropriate given the US weakness, the IMF said. But the total cost of the 1.35 trillion dollars in tax cuts over 11 years is likely to exceed current estimates, the IMF directors said, due to the likelihood that tax easing would run beyond schedule. Concern over the US economy had been stoked last week when the US Federal Reserve issued a grim Beige Book report describing disappointing retail sales and a decline in manufacturing in June and July.