The Economy Has Flatlined...

Submitted by SadInAmerica on Mon, 06/23/2008 - 4:32pm.

The US economy has flatlined and is poised for only a sluggish recovery next year, the International Monetary Fund (IMF) said on Friday as it urged the Federal Reserve to keep interest rates on hold.

In a 2008 health-check on the economy, IMF staff said US gross domestic product would not grow at all this year, when measured fourth-quarter over fourth-quarter, adding that growth would revive only gradually to hit 2 per cent in 2009.

The slowdown in the US has exacted a toll abroad, and the IMF said growth in the second half this year in all major industrial countries will be below trend for the first time since the start of this decade.

It cautioned that the expected US economic recovery was threatened by strains on household and bank finances, and higher energy and food prices, but praised the Federal Reserve for lowering interest rates aggressively and protecting the economy from a more-dramatic slump. "The slowdown in activity in the US has been less than feared, and recovery should begin next year as important headwinds are overcome," the fund said.

Risk management

"Monetary policy settings are now broadly supportive of recovery, and a risk-management approach would suggest that policy should be on hold," it added.

The IMF said a decline in the dollar's value had brought the currency closer to levels consistent with medium-term fundamentals.

It noted, however, that the adjustment had been uneven - with larger drops against free-floating currencies, such as the euro, and smaller moves against currencies of countries with large current account surpluses, such as the China. Because of this, its impact on bringing about better balance to global trade flows had been limited, the IMF said.

June 23, 2008 - source Gulf News

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Submitted by SadInAmerica on Mon, 06/23/2008 - 4:32pm.