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IMF Trims U.S. Growth Forecast, Warns on Fiscal Cliff IMF Trims U.S. Growth Forecast, Warns on Fiscal Cliff

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Policy / Economy

IMF Trims U.S. Growth Forecast, Warns on Fiscal Cliff

photo of Catherine Hollander
July 16, 2012

The International Monetary Fund lowered its forecast for the United States’ growth on Monday in an update to its World Economic Outlook and warned of risks to the economy as fears grow about the "fiscal cliff."

In an update to figures it released in April, the IMF cut its U.S. forecast in 2012 to 2.0 percent from 2.1 percent. The estimate for 2013 growth was trimmed to 2.3 percent from 2.4 percent. Distortion in seasonal adjustment and payback from the unusually mild winter explained some of the slowdown, the global organization said, but it added that there also appeared to be “an underlying loss of momentum” in the recovery.

To prevent a further slowdown in the recovery, “avoiding the fiscal cliff, promptly raising the debt ceiling, and developing a medium-term fiscal plan are of the essence,” the report said. The resulting tax increases and spending cuts could deal a harsh blow to the economy, according to the IMF. “U.S. growth would then stall next year, with significant spillovers to the rest of the world. Moreover, delays in raising the federal debt ceiling could increase risks of financial market disruptions and a loss in consumer and business confidence,” the IMF said.

 

The IMF also lowered its global growth expectation to 3.5 percent to 3.6 percent for 2012, citing turmoil in financial markets and the euro zone's woes. The most immediate threat to growth worldwide, according to the report, is that delayed or insufficient policy action will cause the euro zone crisis to escalate.

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