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IMF: US economy's slowdown less than feared

(Xinhua)
Updated: 2008-06-22 10:15

The International Monetary Fund(IMF) said on Friday the current economic slowdown in the United States "has been less than feared," and recovery should begin next year as important headwinds are overcome.

"Considering the severity of the shocks that have hit, the economy has held up well so far, with substantial monetary and fiscal stimulus, buoyant net exports, and healthy corporate balance sheets all providing welcome support," said the IMF in a statement.

"However, their effect is being blunted by growing strains on household and bank finances, and now also by higher commodity prices. These strains, which have yet to fully feed through to domestic demand and activity, will take time to work out," the statement added.

The IMF thus projects that real GDP in the United States will be "roughly flat" in 2008, and recover gradually in 2009 to around 2 percent.

"Although inflation expectations have ticked up on surging commodity prices, we expect that price pressures will be contained as commodity prices peak and economic slack rises," said the fund.

It also pointed out that the unusual nature of the ongoing crisis in the financial and housing sectors leaves the outlook highly uncertain.

"A more rapid recovery is clearly possible, given the substantial policy stimulus and proactive response of financial markets to repair balance sheets," said the agency, noting that the world's largest economy, however, is facing historically unprecedented shocks, financial conditions currently presage further tightening.

"There is the worrisome possibility that weakening activity will feed back into further bank losses, generating a longer slowdown," it warned.

"US authorities are to be congratulated on their rapid and innovative responses to a complex crisis, but significant challenges lie ahead," it added.

"The policy reactions will help minimize disruption not only in the United States but across the world," said the IMF, noting that these actions will need to be supplemented by broader efforts in major countries to foster stability in international financial markets and maintain an open trading system in the period ahead.