Tags: IMF | Cuts | US | Growth | Forecast | Oil | Jobs

IMF Cuts US Growth Forecast on Oil, ‘Lackluster’ Jobs Pace

Monday, 11 Apr 2011 10:26 AM

The International Monetary Fund lowered its forecast for U.S. growth this year, predicting higher oil prices and the pace of job gains will restrain the recovery.

The world’s largest economy will expand 2.8 percent this year, down from the 3 percent projected in January, the IMF said today. Global gross domestic product will grow 4.4 percent in 2011, matching the previous estimate, according to the Washington-based lender’s World Economic Outlook report.

Consumer spending, the biggest part of the U.S. economy, faces headwinds from the rising cost of food and gasoline. Federal Reserve officials last month said the expansion is on “firmer footing,” lessening the need to extend a bond purchase program beyond June.

“Recovery in the labor market remains lackluster,” the IMF said in the report. “The drag on 2011 growth from oil price increases largely offsets the boost from the Federal Reserve’s unconventional policies and from stronger net exports.”

The economy grew 2.9 percent last year, the most since 2005, according to figures from the Commerce Department. U.S. GDP will expand 2.9 percent this year and 3.1 percent in 2012, according to the median estimate of about 70 economists surveyed by Bloomberg News from April 1 to April 7.

“This may just be a pause that refreshes in the overall expansion,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in an interview on April 8. “The primary risk to the forecast is oil, front and center.”

Crude oil for May delivery rose $2.49 to $112.79 a barrel on the New York Mercantile Exchange on April 8, the highest settlement since Sept. 22, 2008.

U.S. Jobless

The jobless rate in the U.S. will average 8.5 percent this year and 7.8 percent in 2012, the IMF said in the report. Unemployment was 8.8 percent in March, according to U.S. Labor Department data.

“Job creation has recently accelerated, but the pace of improvement in the labor market remains disappointing considering the size of the job losses during the decline,” the fund said in the report.

The IMF also highlighted several risks to the recovery, including a spike in oil and commodity prices that “could dampen confidence and weaken consumer spending.” The housing market, which precipitated the recession that began in December 2007 and ended in June 2009, may see home prices decline further, according to the report.

The Fed, after its latest policy meeting March 15, pledged to continue its program of purchasing $600 billion of bonds through June, in order to “promote a stronger pace of economic recovery.” Fed officials also said a rise in commodity prices signaled the deflation risk had diminished and they were unlikely to expand the bond purchase plan.

Living Cost

Consumer prices will climb 2.2 percent this year and 1.6 percent in 2012, according to the IMF report. The cost of living in the U.S. increased 2.1 percent in the 12 months ended February, according to the Labor Department in Washington.

The fund also called for the U.S. to tackle its growing deficit. “A credible strategy to stabilize public debt in the medium term, and a down payment on fiscal consolidation in 2011, are urgently needed,” the IMF said in the report.

Signs of improvement in the economy, according to the IMF report, consist of business investment in durable goods, manufactured items meant to last at least three years, and “healthy corporate balance sheets,” putting companies in a position to “support stronger hiring.”

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The International Monetary Fund lowered its forecast for U.S. growth this year, predicting higher oil prices and the pace of job gains will restrain the recovery.The world s largest economy will expand 2.8 percent this year, down from the 3 percent projected in January, the...
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2011-26-11
Monday, 11 Apr 2011 10:26 AM
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