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US growth slow but steady: IMF

In its newest global forecasts, the IMF said that the end of the fight between the White House and congressional Republicans over spending has removed uncertainties that spilled around the world, raising the prospect of a forced US economic contraction or a debt default.

business Updated: Apr 08, 2014 20:17 IST

The clearing of Washington's fierce debt and deficit battles of the past three years has opened the way toward stronger US economic growth, the International Monetary Fund said Tuesday.

In its newest global forecasts, the IMF said that the end of the fight between the White House and congressional Republicans over spending has removed uncertainties that spilled around the world, raising the prospect of a forced US economic contraction or a debt default.

But with the deals done in January and February this year, the world's largest economy, though growing slowly, has the potential to strengthen and continue to anchor a frail global economy.

The IMF brushed off the severe winter storms across much of the eastern half of the US in the December-February period, though they clearly impacted production and consumption.

It reaffirmed its forecast that US output would expand by 2.8% in 2014 and pick up to 3.0% next year.

"The unusually harsh winter weather weighed on activity in early 2014, but growth is expected to rebound over the rest of the year, driven by strong growth in residential investment, ... solid personal consumption, and a pickup in nonresidential fixed-investment growth as consumer and business confidence improves," the Fund said in its World Economic Outlook report.

"More moderate fiscal consolidation helps," it said, highlighting the political compromise that prevented Republicans from slashing spending to balance the US budget in a short period.

It also said that the Federal Reserve's easy-money policies, including its ultra-low interest rate and quantitative easing program, have been important, especially to help the recovery in asset prices and the real estate market, boosting household wealth.

Even so, the US economy is still not motoring quickly or smoothly, the IMF said. It pointed out the slow hiring growth in the labor market and the still-low participation rate, which has helped keep household incomes down and repressed upward pressure on wages.

Unless job creation pick up speed, the return of people to the labor market will continue to hold down wage levels, it said.

The IMF applauded the Federal Reserve's slow cutbacks to its stimulus program, even though these have sent tremors through global markets, pushing up interest rates and pulling capital from emerging markets.

At the current pace of US growth, the Fed is justified in tapering the stimulus program, the IMF said. Nevertheless, "the overall monetary policy stance should remain accommodative, considering the sizable slack and steady inflation expectations....

"As the date of the liftoff draws nearer, the Federal Reserve will have to clearly convey to the market how it will assess progress toward achieving those objectives, in order to avoid an increase in policy uncertainty."