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US economy near stalling without stimulus: IMF PDF Print E-mail
Friday, 01 February 2008

Agence France-Presse . Washington

The US economy could nearly stall this year without a stimulus plan to bolster the Federal Reserve’s interest rate cuts, the International Monetary Fund said Tuesday.

The IMF revised sharply lower its economic growth forecast for the United States, to 1.5 per cent, 0.4 percentage points lower than estimated in October in its twice-yearly World Economic Outlook report.

‘Economic growth in the United States slowed notably in the fourth quarter in 2007, with recent indicators showing weakening of manufacturing and housing sector activity, employment, and consumption,’ the IMF said in a WEO update.

At 1.5 per cent, the 2008 annual growth would mark a significant slowdown from the estimated 2.2 pace seen in 2007. Still, the IMF stressed that the strength of the 2008 figure ‘reflects the carryover from 2007’ growth as well as the assumption that an economic stimulus plan being formulated by President George W Bush’s administration and Congress will be enacted this year.

Saying it wanted to “give a better sense of the slowing growth momentum,’ the IMF projected fourth-quarter growth on an annual basis. In the 2008 fourth quarter, growth be 0.8 per cent from the same period in 2007, compared with 2.6 per cent in the 2007 fourth quarter from a year earlier.

The US slowdown potentially could be more brutal without the government stimulus plan. ‘A modest and a temporary fiscal stimulus can be helpful,’ said Simon Johnson, the IMF’s chief economist.

His comments came after Bush and the leaders of the House of Representatives agreed last week on a 150 billion dollars stimulus package.

The plan includes tax rebates to spur consumer spending, which accounts for two-thirds of US economic activity. Johnson said the stimulus plan could add the equivalent of between a 0.2 and 0.3 percentage points to annual growth.

On an annual basis, without such a stimulus, the US economy could decelerate to 0.5 per cent growth in 2008, according to a calculation of the IMF figures.

Most economists define a recession as two consecutive quarters of contraction. Senate leaders on Tuesday offered their own version of the programme, threatening to delay the Bush-House compromise plan.

The chief IMF economist said the baseline of the US growth forecast assumes the fiscal stimulus plan takes effect in the third and fourth quarters.

Johnson underscored that fiscal stimulus was not a good idea if there is high inflation and inflation expectations.

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