Growth in the United States is expected to hit the fastest pace in 20 years, the International Monetary Fund predicted Wednesday.
The IMF significantly increased its growth forecast both for the United States and the global economy in its latest World Economic Outlook. But IMF officials cautioned that this rosy outlook could be undone by further terrorist attacks or a sharp increase in oil prices.
“As recent events in Madrid and elsewhere underscore, geopolitical uncertainties remain an important, if difficult to quantify, risk and further oil price volatility remains a concern,” the IMF said in its latest global outlook.
The IMF predicted the global economy would expand by 4.6 per cent this year after growing by 3.9 per cent in 2003. Those growth rates are 0.6 percentage point higher than the IMF’s last global forecast made in September.
For 2005, the IMF sees continued strong global output of 4.4 per cent.
For the United States, the IMF predicted growth this year of 4.6 per cent, which if it comes true, would be the fastest growth rate since the U.S. economy expanded by 7.2 per cent in 1984. That represented a 0.7 percentage point increase in the IMF’s September forecast.
For 2005, the IMF said the U.S. economy will slow a bit but still should grow by 3.9 per cent, still better than the 3.1 per cent actual increase in 2003 or the 2.2 percent growth in the U.S. gross domestic product in 2002.
The IMF also boosted its growth forecasts for China, predicting it would grow by 8.5 per cent this year, a full percentage point higher than its September outlook, and Japan, where it projected growth of 3.4 per cent this year, nearly 2 percentage points higher than the September outlook.
However, the IMF downgraded its forecast for a number of countries in Europe which have been struggling to find the right mix of policies to bolster lagging growth. Countries using the euro, which has hit record highs recently against the falling dollar, will see growth of just 1.7 per cent this year as the weaker dollar boosts the competitiveness of U.S. exports against European products.
The IMF gave credit to President George W. Bush’s 2001 and 2003 tax cuts and low interest rates engineered by the Federal Reserve for fueling this year’s economic rebound.
But it cautioned that the time was approaching when the Fed would feel the need to start raising interest rates to keep the U.S. economy from overheating and it said that the U.S. government also needed to be concerned about the threats posed by the country’s soaring budget and current account trade deficits.
The IMF said the U.S. budget and trade deficits “remain a serious concern” especially because of the risks that these imbalances could at some point trigger a disorderly fall in the value of the U.S. dollar which could destabilise the global economy.
The dollar has declined by more than 16 per cent when measured against other major currencies since February of 2002 and so far that decline has been orderly. But the IMF warned that “abrupt adjustments” in the dollar’s value against other currencies cannot be ruled out, especially if at some point foreign investors suddenly decide to reduce their holdings of dollar-denominated investments.
U.S. Treasury Secretary John Snow, however, took issue with the IMF’s urgings of greater efforts on the part of the United States to deal with the budget and trade deficits, saying the real problem is a lack of strong economic growth in other countries.
“The fact is that we have a growth deficit,” Snow said in comments to reporters after testifying in Congress. “And the growth deficit is the low growth rates in France and Germany and other parts of the developed world.”
Snow said that the stronger U.S. economic growth, fueled by Bush’s tax cuts, was “making the whole world economy stronger, healthier and more prosperous.”
By Martin Crutsinger
AP Economics Writer
