U.S. Economy Seen Stabilizing, But Risks Remain
| Author | International Monetary Fund |
A final report will be issued once it has been discussed by the IMF's 24-member Executive Board in late July.
The financial system has stabilized while the downward slide in labor and housing indicators have slowed, but the short-term outlook remains uncertain. Significant risks continue to linger, including more foreclosures and further drops in housing prices, rising unemployment, and higher interest rates, the IMF said after concluding consultations with U.S. authorities.
Every year, the Fund conducts reviews of its member countries economies as part of its work in monitoring the health of the global economy.
"Recent data suggest that the sharp fall in economic activity has slowed notably, while financial conditions have improved noticeably. Correspondingly, we are revising our forecast upward, although its broad contours remain unchanged. We anticipate stagnation and economic activity in the coming quarters before a sustainable recovery takes hold next spring," John Lipsky, First Deputy Managing Director of the IMF, told reporters.
The global economic crisis erupted in the U.S. housing market and financial system in 2008 and quickly spread around the world. Governments reacted with fiscal and monetary policies to counter the downward turn in their economies.
The IMF found the U.S. fiscal stimulus package "well targeted, timely, diversified and sizeable," which will help soften the blow of declining growth. While GDP is expected to contract by 2.5 percent in 2009, followed by a modest expansion in 2010, this includes the effects of the fiscal stimulus package, which would boost annual GDP growth by 1 percent in 2009 and a quarter of a percent in 2010.
The bank stress tests conducted by the Federal Reserve and the Treasury and the capital injections into the banking system have raised confidence in the stability of the major financial institutions. Close monitoring of the financial system should continue, according to the IMF, with regular stress tests to evaluate any potential weaknesses.
The statement also called for quick implementation of the proposed resolution framework for nonbank financial institutions, which would strengthen the process for unwinding large, troubled financial institutions.
Efforts to stabilize the housing market have helped bring down mortgage rates...
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