The US economy appears to be in a sustainable and robust expansion, but still faces uncertainties about job growth and worrisome budget and trade deficits, the IMF said today.
In its World Economic Outlook, the International Monetary Fund raised its 2004 US growth forecast to 4.6%, up from a projected 3.9% last September. The US economy grew 3.1% last year. The IMF projected the US economy would remain on a strong growth track of 3.9% in 2005.
'Following a year of uncertainty and tentative recovery, the US economy moved ahead strongly in the second half of 2003 as geopolitical uncertainties eased, monetary and fiscal policies remained highly stimulative, and the aftereffects of the bursting of the equity price bubble waned,' the IMF semi-annual report said.
'Forward-looking indicators generally point to a continued robust expansion ahead. This forecast is predicated on further strong business investment growth and only a modest slowing in private consumption during 2004 as improving employment conditions and the rebound in equity prices largely offset the fading impact of tax cuts and home equity withdrawals,' it added.
But the IMF report noted that one major uncertainty is how quickly employment will grow after the so-called jobless recovery of the past year or so. Sluggish job growth could dent the key area of consumer spending.
But the IMF was optimistic that employment growth would resume, even hiring has been slow. 'The recession has encouraged firms to implement changes in the way they utilise labour to improve productivity and lower costs, and they have therefore required less labour to meet increased demand,' the report said.
This and other factors, the IMF said, 'are likely to have delayed rather than negated the usual cyclical recovery in the labour market, and with the corporate profit share currently close to record levels and unit labour costs having declined over the past two years, a pickup in employment and wages is likely.
Private economists expect the world's largest economy to show growth of 4-5% in the first quarter, with a possible cooling by mid-year.
The IMF noted that two factors supporting the US economy, super-low interest rates and a sizzling housing market, may fade in the coming months, posing some risks for growth. It also assumed a modest rise in US interest rates this year.
