|
Imf warns significant downside risks { August 27 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/08/27/business/27WIRES-IMF.htmlhttp://www.nytimes.com/2003/08/27/business/27WIRES-IMF.html
August 27, 2003
IMF Report Pessimistic on U.S. Budget, Depreciation, and Global GDP
By REUTERS
MILAN, Aug 27 (Reuters) - The IMF is set to cut its global growth forecast for this year, a draft report obtained by Reuters on Wednesday showed, dampening recent optimism about the likely strength of an economic recovery.
The International Monetary Fund plans to trim its 2003 global growth forecast to 3.1 percent from 3.2 percent, warn of risks to an upturn, and cut its outlook for the euro zone to 0.7 percent from 1.1 percent.
Even for the United States, which many economists see as the prime candidate to lead the world out of its recent doldrums, the growth forecast in its draft World Economic Outlook remains at 2.2 percent.
That is precisely where it stood when the Fund issued its last Outlook in April.
A raft of strong economic data suggests the United States will lead a global economic upturn, while growing confidence in the euro zone, shown by Germany's Ifo business climate index and Belgium's business confidence index, indicate the euro zone economy will follow.
In the draft document, due to be submitted at the annual meetings of the IMF and World Bank in Dubai next month, the IMF sees global economic growth accelerating in the second half of 2003 and reaching 4.0 percent in 2004, with U.S. growth seen at 3.6 percent next year.
The draft raises the Japan forecast to 1.1 percent from 0.8 percent for 2003 with 0.8 percent growth seen in 2004.
However, the IMF warned there were significant downside risks to the global economic recovery, and was particularly critical of the United States' inability to curb its burgeoning current account and budget deficits.
Other risks to growth cited by the IMF were the after-effects of the burst stockmarket bubble on investment in industrial nations; a strong rise in real estate prices in some industrial nations; the vulnerability of highely indebted emerging economies to a deterioration in financing conditions on capital markets, and the risk of a price-decline in Germany.
U.S. DEFICIT WARNING
The IMF said that "unprecedented" monetary and fiscal policy stimulus could boost U.S. growth in 2004 beyond its 3.6 percent forecast, but reproaches the country for its fiscal indiscipline.
It also warned that the United States' untenably high current account deficit could lead to "disorderly" exchange rate movements further down the line.
The IMF sees the U.S. budget deficit reaching 6.1 percent of gross domestic product in 2003, with a structural deficit of 5.2 percent of GDP, and only a slight decline in sight for 2004.
"It criticises the U.S. government's excessively optimistic assumptions regarding the development of overall state spending and revenues and the lack of a medium term concept to consolidate budgets and reform the social insurance system," the draft says.
The White House last month predicted that federal budget deficits would balloon to $455 billion this year and $475 billion in 2004 -- far above the previous record of $290 billion in 1992 -- excluding the cost of the U.S. occupation of Iraq.
CUTS EURO ZONE OUTLOOK
The IMF is also set to trim its forecast for eurozone growth in 2004 to 1.9 percent from an earlier forecast of 2.3 percent growth, highlighting doubts about the strength of an upturn in the region.
While sentiment indicators in Europe have been pointing up, economists are still waiting for hard data to confirm that a recovery is underway.
However, a consumer-led upturn is unlikely with unemployment expected to keep climbing next year, while euro zone firms have seen exports hurt by the recently strong euro.
The IMF draft delivered an especially gloomy outlook for Germany, cutting its forecast for GDP growth to zero in 2003 from an April forecast of 0.5 percent. It predicts growth of 1.5 percent in 2004, but says Europe's largest economy faces a mild decline in prices.
"This includes for Germany the risk of an - albeit mild - price decline as well as the financial sector, whose resilience is additionally threatened by continued economic weakness," the draft report says.
The IMF cut the forecast for France to 0.8 percent for 2003 from 1.2 percent and sees 1.9 percent growth in 2004.
The draft says monetary policymakers in industrial nations should continue to support the economic upturn and urges the European Central Bank to "take account of the fact that negative developments in individual countries can potentially influence the entire currency area."
Copyright 2003 The New York Times Company | Home | Privacy Policy | Search | Corrections | Help | Back to Top
|
|
