Washington - The International Monetary Fund on Tuesday pared its
growth forecast for the US economy and warned that the Obama
administration could be slicing the deficit too fast for the weak
It also said the economy was under threat from the
pre-programmed "fiscal cliff" combination of sharp spending cuts and tax
increases at the year-end, and a worsening of the eurozone crisis.
The IMF estimated 2012 US economic growth at 2.0%, down from April's forecast of 2.1%, and said even that
outlook was at risk from both domestic and international threats.
"It is critical to remove the uncertainty created by
the 'fiscal cliff' as well as promptly raise the debt ceiling, pursuing a
pace of deficit reduction that does not sap the economic recovery," the
fund said in its annual report on the US economy.
The fiscal cliff is the result of Congress's failure to
agree on a deficit reduction plan, resulting in mandated tax increases
and spending cuts to take effect by January 1, 2013.
But Congress remains deadlocked over how to change the law that mandates the fiscal cliff measures.
The IMF criticized President Barack Obama's proposed
fiscal 2013 budget, which calls for slashing the nation's deficit by
three percentage points to about 5.5% of gross domestic product.
Even if as expected the deficit cutting is less than
three points, the IMF warned that "this smaller reduction would be too
rapid, given the weak economy."
"The composition of spending should be as
growth-friendly as possible," the IMF said, suggesting a larger deficit
of about 6.25% of GDP would be appropriate.
The global lender cited a litany of risks to US growth,
including "the limited room for monetary policy to offset the fiscal
drag" amid the Federal Reserve's long-running support of ultra-low
interest rates and other stimulus.
The distressed labor market could also be further
battered if the economy falters, saying there was a "risk that prolonged
economic slack could reduce potential output through skill erosion" and
the exit of discouraged workers from the labor force.