Today's Coming Crisis Movie

Friday, June 17, 2011

IMF cuts U.S. growth forecast, warns of crisis

The International Monetary Fund cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits.

The IMF, in its regular assessment of global economic prospects, said bigger threats to growth had emerged since its previous report in April, citing the euro zone debt crisis and signs of overheating in emerging market economies.

The Washington-based global lender forecast that U.S. gross domestic product would grow a tepid 2.5 percent this year and 2.7 percent in 2012. In its forecast just two months ago, it had expected 2.8 percent and 2.9 percent growth, respectively.

Overall, the IMF slightly lowered its 2011 global growth forecast to 4.3 percent, down from 4.4 percent in April. Its forecast for 2012 growth remained unchanged at 4.5 percent.

The IMF said it was slightly more optimistic about the euro area's growth prospects this year, but a lack of political leadership in dealing with Europe's debt crisis and the wrangling over budget in the United States could create major financial volatility in coming months.

"You cannot afford to have a world economy where these important decisions are postponed because you're really playing with fire," said Jose Vinals, director of the IMF's monetary and capital markets department.

"We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis," he said in an interview in Sao Paulo, where the updates to the IMF's World Economic Outlook and Global Financial Stability Report were published. (read more)