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Last Updated: Thursday, 28 August, 2003, 11:43 GMT 12:43 UK
IMF warns US on deficit

By Rodney Smith
BBC World Service business staff

The International Monetary Fund has warned the United States that while speedy economic recovery there would benefit the whole world economy, the Bush administration should pay more attention to the instability threatened by its huge budget deficit.

In a report prepared for the World Bank and IMF annual meetings in Dubai next month, and leaked to Reuters news agency and leading newspapers, the Fund says that it has increased its forecast for economic growth in the US this year and next.

But it warns that while fiscal stimulus - President Bush's tax cuts - has helped the US and global economies to recover, the Bush administration is too optimistic about its budget deficit.

The Fund thinks it could balloon to $550bn - that would be more than 5% of economic output, significantly greater than the 3% limit that eurozone countries are required to aim for.

Hint to China

The Fund expects the eurozone to grow just 0.7% this year - some economists had been forecasting a slide into recession for the eurozone - and it has cut slightly its forecast for growth in the UK.

It says global growth should reach 3.2% this year and 4% next year.

In an apparent hint to the Chinese to consider revaluing their currency, the renminbi, the Fund warns East Asian countries that built large dollar reserves after the Asian economic crisis at the end of the last century that their savings had been excessive.

It says currency manipulation in Asia has added to global imbalances and Asian countries should aim to correct this by allowing their currencies to appreciate.

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