Fri Jun 17, 2011

WASHINGTON – The International Monetary Fund warned Friday that the U.S. economy is expected to progress at slower pace this year than previously estimated, due to higher oil prices and lower factory output.

IMF also claimed that the European debt crisis represents a growing threat to the world economy. The investors are increasingly concerned that Greece's government won't have the necessary tools to implement the changes that are to be made to avoid defaulting on its debt.

The U.S. is forecast to gain 2.5 percent this year, less than the IMF's April estimate of 2.8 percent. Growth will probably be 2.7 percent next year, the international lending organization said, rather than 2.9 percent. Both forecasts are far more optimistic than the 2.9 percent growth recorded by USA in 2010. The global economy will likely gain 4.3 percent this year, down from an earlier forecast of 4.4 percent.

The lower U.S. estimate is similar to the results achieved by private economists. A survey of 38 economists this month by The Associated Press found that they expect growth of 2.6 percent this year, down from an earlier forecast of 2.9 percent.

The IMF enlarged its forecast for the 17-nation euro area, which it said it expects to grow 2 percent this year. That's compared to a previous estimate of 1.6 percent. The improvement in the outlook is largely due to higher business investments in Germany and France.

The IMF also warned that U.S. and Japan’s large budget deficits may threaten their economies.
Both countries should take measure to cut their deficits, but it can’t be done otherwise than in a gradual pace, the IMF said. Rapid spending cuts or tax increases could threaten the two countries' recoveries.

The fund said that "For the U.S., it is vital to immediately address the debt ceiling and launch a deficit reduction plan that includes entitlement reform and revenue-raising tax reform.

The Obama administration and the Republican lawmakers are now discussing over how to raise the nation's debt limit of $14.3 trillion. Republicans are demanding about $2 trillion in cuts over 10 to 12 years before agreeing to raise the ceiling.

The organization has 187 member nations and lends money to countries in financial distress. It has played a key role in financing European Union bailout packages for Greece, Ireland and Portugal.