IMF raises US growth forecast, hedges bets on recession

Jun 20, 2008, 15:35 GMT

Washington - The United States economy will be virtually stagnant through much of 2008, the International Monetary Fund predicted Friday, significantly raising its growth forecast of only three months ago that had suggested a recession was likely.

The IMF said growth over this year would be a little above 1 per cent, up from an April forecast of 0.5 per cent. For 2009, the international crisis lender expects US growth of 0.8 per cent, compared to 0.6 per cent in April.

In its annual staff report on the US economy, IMF economists praised US lawmakers for a swift policy response to the housing and financial crisis that had prompted a drastic economic slowdown in the United States.

The Federal Reserve has slashed interest rates by 3.25 percentage points since September, but investors have speculated the central bank could raise its benchmark rate again at its board meeting next week, in response to increasing inflation fears.

John Lipsky, the IMF's deputy managing director, pulled back from the Washington-based institution's earlier prediction of a 'mild recession' this year in the world's largest economy.

Lipsky predicted growth would be 'stagnant' for the second half of 2008 and warned that all of the world's advanced economies were expected to experience 'below trend' growth this year for the first time in decades.

The IMF's World Economic Outlook in April said the US economy would contract by 0.7 per cent in the time period that starts with the fourth quarter in 2007 and ends with the fourth quarter in 2008. Now, the group expects growth to be flat over the same period.

In 2007, the US economy grew by 2.2 per cent.

'All things considered ... the US economy has held up well,' Lipsky told reporters, adding that the US had successfully avoided the 'hard landing' usually associated with heavy shocks to the system.