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Strong dollar a US risk, says IMF

The International Monetary Fund says it sees the US recovering faster than previously thought, but believes an overvalued dollar remains a risk to the overall economy.

In a copy of its World Economic Outlook, the IMF is to forecast that the US economy will grow by 1.4% this year and 3.8% in 2003.

'If this forecast growth comes about, it will be the lightest recession ever in the US,' the IMF said in the report which is due to be published in mid-April. In its last World Economic Outlook in December the Fund forecast the US economy would grow by just 0.7% this year.

'Based on the improved economy, the IMF does not see a need for additional fiscal impetus, rather a need for consolidation in the medium term, also because of demographic developments,' it said.

However, the IMF said Japan would continue to weigh on global growth and would remain mired in recession this year and grow by just 0.8% in 2003. 'Japan is in its third - and worst - recession in a decade.

'We see growth of 0.8% in 2003, but this will be largely down to recovery in the global economy. The main reason for slow growth in Japan is a failure to deal in a decisive way with the structural restrictions on growth,' the IMF said.

The IMF forecast global growth of 2.5% in 2002 but sees the rate rising sharply towards the end of the year. However, it added that a combination of the situation in Japan, an overvalued dollar, a high balance of payments and a low US savings rate could impact on global growth.

Overoptimism in the financial markets and 'setbacks in the fight against international terrorism' could also hit growth.

The IMF said it expected the euro zone to grow 1.2% this year and 2.8% next year. The main dangers for its euro zone growth forecasts were slower than expected global growth, a slow German upturn as well as structural weaknesses, especially in the labour market.

'Inflation pressures are weak, as is growth in wages and salaries. Overall the IMF sees room for monetary easing, if there are further signs of weakness,' the report said.