US economy may be weak 'for years to come': IMF

WASHINGTON: The International Monetary Fund on Tuesday warned the US economy could remain weak for years to come, describing a recovery stalled amid unrelenting headwinds and in dire need of a push from government.

The Washington-based fund slashed its US growth forecasts for this year and next, while warning of the need for more government stimulus in the short-term as well as a credible longer-term plan to cut spending.

"The US economy is struggling to gain a strong foothold, with sluggish growth and a protracted job recovery," the IMF said, as it cut US growth forecasts for this year by a full percentage point to a paltry 1.5 percent.

That is a slower rate than projected for the crisis-wracked eurozone.

Citing crushed US consumer confidence and battered business sentiment -- as well as ongoing crises in the housing and financial markets -- the IMF said "growth will be modest relative to historical averages for years to come."

That bleak assessment is certain to fuel fears that the United States is destined for a Japan-like "lost decade" of growth, particularly as the White House and Congress continue to bicker over how to cut debt levels and how to stimulate growth.

"The first priority for the US authorities is to commit to a credible fiscal policy agenda that places public debt on a sustainable track over the medium term, while supporting the near-term recovery."

As President Barack Obama and his Republican foes fight over how to put the budget back on an even keel, the IMF said a solid deal was essential both for the US, and for the global economy.

"Delays in accomplishing an adequate medium term debt-reduction plan could suddenly induce an increase in the US risk premium, with major global ramifications."

By contrast a deal could pave the way for sounder short-term fiscal policies.

"This would allow the near-term fiscal policy stance to be more attuned to the cycle, for example, through temporary stimulus to support labor and housing markets, state and local governments, and infrastructure spending."

The IMF's gloomy assessment of the US economy comes as Washington girds to enter a presidential election year, making political compromise all the more tricky.

But the pessimistic outlook is shared by private economists.

"In an economy like that of the United States where around 60 percent of the economy is consumption, confidence is perhaps the most important ingredient requisite for economic growth and an improving job market," said Jason Schenker of Prestige Economics.

"Without confidence and without spending, deflation and recession are major risks."

Copyright AFP (Agence France-Presse), 2011