The International Monetary Fund says the US economy appears to be gathering momentum but warns that the recovery could be tripped up by a number of events including soaring budget and trade deficits.
In its twice-yearly World Economic Outlook, the IMF boosted its US growth forecast to 2.6% in 2003 from a 2.2% forecast in April, and to 3.9% next year, up from 3.6%.
'Following the end of the war in Iraq, the recovery has begun to regain momentum,' the IMF said.
As a result of big tax cuts and low interest rates that have been stimulating growth, 'a stronger economic upturn is clearly possible,' it added.
But the US economy is also constrained by high excess capacity following the 1990s boom, along with continued corporate caution in the wake of recent accounting scandals, the report noted.
High levels of corporate and household debt and weak labour market conditions are also acting as a drag on economic growth.
Perhaps more significantly, the IMF expressed concern that the US economy faces risks from a mushrooming budget deficit and a massive current account deficit.
These 'twin deficits' are being financed largely by sales of government and corporate bonds, much of this to Asian central banks. The IMF warned that this imbalance could become problematic by leading to a sharp fall in the dollar, which could disrupt the global economy.
