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U.S. economic recovery slow, further stimulus needed: IMF

07-30-2010 15:17 BJT

WASHINGTON, July 30 (Xinhua) -- The U.S. economic recovery has been slow and the outlook remains uncertain with rising downside risks, which warrants further policy stimulus to keep recovery on track, the International Monetary Fund (IMF) said Friday.

"Private demand has been sluggish, while the unemployment rate has receded only modestly from near post-Depression highs," the IMF said in its annual assessment of the U.S. economy and policy response.

U.S. jobless rate currently stands at 9.5 percent, a level that the Obama administration called "unacceptably high." High unemployment makes households reluctant to spend more and constrains private expenditure, which accounts for about 70 percent of the overall economy.

"Looking ahead, risks are elevated and tilted to the downside, with particular risks from a double dip in the housing market and spillovers if external financial conditions worsen," the IMF said after its Executive Board concluded consultations with U.S. authorities.

The collapse of the U.S. housing market triggered the worst financial crisis since the 1930s. While other sectors, including manufacture, service and financial industry, have shown gradual improvements since recovery began in the second half of last year, housing market seems to be stubbornly sluggish and continues to drag down the fragile economic recovery.

Meanwhile, sovereign debt crisis in Europe brought a shock to the global financial markets and further tightened credit conditions. This brings more uncertainties to the U.S. recovery.

After rising at an annual rate of about 4 percent in the second half of last year, U.S. real Gross Domestic Product (GDP) increased at a rate of 2.7 percent in the first quarter of this year, and is expected to strike an even more moderate gain in the second quarter.

"With recovery still dependent on policy support, rising downside risks, and substantial long-term fiscal and financial-sector challenges, further decisive action is needed to achieve stable medium-term growth and limit risks of adverse international spillovers," the IMF said.

It argued that although the envisioned withdrawal in 2011 is appropriate, fiscal stimulus should continue to play a supportive role this year.

The 862-billion-dollar stimulus package, which President Barack Obama signed into law shortly after taking office, has so far saved 2.8 million jobs, according to the White House.

Given a slowdown of economic recovery indicated by a host of recent economic reports, some economists and politicians insist that the administration should draw up additional stimulative measures to avoid a so-called "double-dip" recession. But this is strongly opposed by those who are deficit-sensitive and believe additional measures will only accelerate the bankruptcy of the federal government.

"Monetary support can be sustained for longer, given quiescent inflation expectations and forthcoming fiscal drag," the report added.

The Federal Reserve has maintained the key interest rate at a record low of near zero since the end of 2008 to prop up the economy. It also designed a variety of unconventional facilities, including purchases of Treasury debt and mortgage-backed securities, to ameliorate financial strains.

Federal Reserve chairman Ben Bernanke recently told lawmakers that the Fed was "prepared to take further policy actions as needed," but stopped well short of saying action was imminent.

Editor:Xiong Qu |Source: Xinhua

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