IMF Sees No US Growth In 2010

Source : The Straits Times, April 22, 2009

WASHINGTON - THE IMF unveiled a darker outlook for the US economy on Wednesday than just three months earlier, forecasting a deeper recession in 2009 and no growth at all in 2010.

The International Monetary Fund sharply downgraded its outlook for the world's biggest economy, predicting a decline in output of 2.8 percent for all of 2009 and zero growth for 2010.

The latest figures in the IMF's semiannual World Economic Outlook report were cut from the IMF's January update by 1.2 percentage points for 2009 and 1.6 points for 2010. The forecasts are far more pessimistic than those from the US Federal Reserve, White House, congressional experts and many private economists.

'Despite large cuts in policy interest rates, credit is exceptionally costly or hard to get for many households and firms, reflecting severe strains in financial institutions,' the IMF report said. 'In addition, households are being hit by large financial and housing wealth losses.'

US gross domestic product (GDP) fell at an annualized pace of 6.3 per cent in the fourth quarter of 2008 and the IMF noted that 'recent data suggest another substantial drop in the first quarter of 2009.'

'There have been some tentative signs of improving business sentiment and firming consumer demand, but employment has continued to fall rapidly - 5.1 million jobs have been lost since December 2007 - pushing the unemployment rate to 8.5 percent in March.'

The IMF report said the US central bank has cuts its base rate to virtually zero, effectively exhausting its main tool of monetary policy and is now using unconventional methods to stimulate the ailing economy.

The IMF cited both 'upside' and 'downside' risks to its forecast. It said that the economy could recover more quickly if financial conditions improve but also cited a 'potential for further intensification of the negative interaction between the real and financial sides of the economy.'

'The housing sector could continue to deteriorate, further declines in asset values could increase insolvency problems for banks and further reduce credit availability, deflation could raise real debt burdens, and demand from other economies could fall more than anticipated,' the report noted.

It said the most pressing policy issue is 'to restore the health of the core financial institutions' and to 'break the cycle of falling asset prices, rising losses in financial institutions, and tighter credit.' -- AFP