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Monday, 5 August, 2002, 22:45 GMT 23:45 UK
IMF says US economy could slow
US economy graphic
The International Monetary Fund is poised to slash its forecast for US economic growth, blaming share falls and accounting scandals.

The fund, in a much watched report, has said that a cocktail of concerns, including worries over stock values and stalled levels of corporate profits, could reduce levels of spending by both consumers and firms.

The report also criticised the US for making "optimistic" economic forecasts, and damaging global trade.

The comments, potentially embarrassing for US President George Bush, will also be analysed worldwide for signals over the ability of the US economy - the world's largest - to dispel global economic concerns.

Investors have in recent days suffered renewed stock market falls, with US shares losing more than 3% of their value on Monday.

'Double dip' recession

Originally, the IMF had predicted that the US economy would grow by 2.5% this year and by 3.25% in 2003.

But recent economic data and "other developments" have exacerbated the downside risks to the outlook for both personal consumption and business investment", Monday's report said.

On Monday, statistics on the US service sector - which makes up two-thirds of the economy - hinted that growth was no longer as strong as it once was.

And investors have feared that the economy, which early this year appeared to be recovering strongly from last year's downturn, may relapse back into recession.

Downside risks

The fund said that "the likelihood" was that "downward revisions to the growth projections would be made" in a key report published next month.

There would be room for further cuts in US interest rates if the business climate continued to be tough.

US Treasury Secretary Paul O'Neill has forecast that the economy would grow by 3.0-3.5% in 2002.

This estimate has been widely questioned after data last week revealed disappointing growth so far this year.

But the report added that while "the downside risks have intensified" the outlook for the US economy remained "broadly favourable".

"The recovery, although now likely to be weaker, is expected to be sustained as business investment rebounds, consumer spending continues at a solid pace," it said.

US Treasury Secretary Paul O'Neill has forecast that the economy would grow by 3.0-3.5% in 2002.

But this estimate has been widely questioned after data last week revealed disappointing growth so far this year.

Trade disputes

The IMF urged Mr Bush's administration to focus its economic policies on budget discipline and reforming corporate governance.

The deterioration in the US budget - which having been in surplus to the tune of 2.5% of national economic output in 2000, is set to reach a deficit of 1.5% this year - was seen as particularly worrying.

The US was also condemned over recent trade decisions, which have seen tariffs slapped on imported steel, and large handouts given to farmers.

Such moves were damaging both at home and abroad, Tuesday's report said.

 WATCH/LISTEN
 ON THIS STORY
The BBC's John Moylan
"The world's biggest economy is slowing down"
The BBC's Mike Johnson
"The IMF believes recent sharp falls on stock markets means consumers may cut back on spending."
David Blitzer, Standard and Poors in New York
"The IMF report follows a trent that we've seen developing over the last two to three weeks."

Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
See also:

05 Aug 02 | Business
05 Aug 02 | Business
31 Jul 02 | Business
31 Jul 02 | Business
30 Jul 02 | Business
29 Jul 02 | Business
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