Report: IMF Slashes U.S. GDP Forecast

Reuters

The International Monetary Fund has slashed its growth forecasts for the United States and says the Federal Reserve and the European Central Bank must be ready to ease policy, Italian news agency ANSA reported on Monday.

The IMF chopped its forecast for U.S. 2011 growth to 1.6% from a 2.5% forecast made just two months ago. It lowered the outlook for 2012 to 2.0% from 2.7%, ANSA said, citing a draft of the IMF's World Economic Outlook to be issued next month.

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In view of growing risks to U.S. growth the Federal Reserve "should stand ready to adopt new non-conventional measures to sustain the economy," ANSA quoted the report as saying.

The Fund trimmed its euro zone 2011 growth forecast to 1.9% from 2.0% and cut the 2012 forecast to 1.4% from 1.7% it said.

With growth faltering and inflation risks also diminishing in the euro zone, the ECB should avoid raising interest rates and has room to ease monetary policy if downside growth risks persist, the IMF said, according to ANSA.

The ECB should also "continue to intervene strongly on sovereign debt markets to avoid excess liquidity."

The bank this month began buying Italian and Spanish government bonds to stave off a market attack which had sent yields rising to unsustainable levels.

The IMF marginally lowered its forecast for global growth this year to 4.2% from a 4.3% forecast in June, and lowered its 2012 projection to 4.3% from 4.5%.

The outlook for the euro zone's largest economy, Germany, was left unchanged for 2011 at 3.2% but the 2012 forecast was cut to 1.6% from 2.0%.

The report cut French 2011 growth by 0.3 percentage points to 1.8% and lowered the 2012 forecast by the same amount to 1.6%.

Italy's outlook was lowered to 0.8% this year from 1.0% and the forecast for 2012 was cut to 0.7% from 1.3%, leaving Italy in its customary position as the most sluggish among the world's large economies.

Spain's growth forecasts were cut to 0.7% from 0.8% for this year and to 1.3% from 1.6% for 2012, ANSA reported.

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