US close to recession, says IMF
The International Monetary Fund believes the US economy "remains very weak, certainly close to a possible recession," according to a leaked report quoted by Italian news agency ANSA on Thursday.
The IMF also said it considered the dollar "rather strong" despite its recent decline and said it expected crude oil prices to be around $95 in 2008 and 2009, according to a draft of the IMF's World Economic Outlook, ANSA said.
The outlook is due to be published for an April 12-13 IMF meeting of member countries.
The draft noted that since the start of 2002 the dollar had "depreciated by around 25 per cent in real terms, in one of the most consistent instances of devaluation since Bretton Woods" and that it had "approached medium-term equilibrium but remains rather strong."
It backed the European Central Bank's interest rate stance. "The ECB is rightly holding interest rates stable for now," it said, adding the ECB "should be ready to respond in a flexible manner if downward risks to growth and inflation growth intensify."
ANSA said the outlook saw global economic growth of 4.2 per cent in 2008, which is slightly above the IMF's last forecast in January of 4.1 per cent but still well below 2007's 4.9 per cent. It confirmed its estimate for 2008 US growth of 1.5 per cent.
By contrast, the Organization for Economic Cooperation and Development said earlier on Thursday US economic growth is grinding to a halt by what could be the worst housing slump on record.
The OECD forecast US gross domestic product would grow by 0.1 per cent in the first three months of this year, and then slow to zero expansion in the second quarter.
The OECD was less concerned about Europe; it marginally raised its first-quarter GDP prediction for the euro zone to 0.5 per cent and lowered it for the second quarter to 0.4 per cent.
The IMF forecast, which was reviewed by the fund's board of directors on Wednesday, could still be revised before the meetings next month. IMF chief economist Simon Johnson is scheduled to officially release the numbers on April 9.
IMF First Deputy Managing Director John Lipsky has said in recent weeks that growth in the US is sluggish but it is not in recession. US Treasury Secretary Henry Paulson this week described the country's economy as being in "sharp decline," the closest he has come to conceding an election-year recession.
The IMF said on Thursday that it believed the Federal Reserve's emergency measures this week to calm turmoil in the credit market, including a hefty three-quarters of a percentage point cut in interest rates, were "appropriate".
"The fund's position is that the decisive action by the Fed has been appropriate," IMF spokesman David Hawley told a regular briefing. (Reuters)
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