• IS provokes sea-change

    It has been a grave mistake to defy both Russia and France, says Leopold Scholtz.

  • Nene's SAA nemesis

    No political figure seems to have the guts to speak out against Dudu Myeni, says Solly Moeng.

  • The mp3 revolution

    Ian Mann takes a look at the war between digital music and the compact disc.

All data is delayed
See More

IMF cuts US growth forecast

Jul 03 2012 17:29

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 economy.

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.

imf  |  us economy  |  growth forecast


Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about:


Marketing is a big concern in SA's small business community, followed by a lack of confidence and partnering with the wrong people, according to a survey.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The 25 basis points interest rate increase is:

Previous results · Suggest a vote