US economy 'uncomfortably' close to stalling: IMF

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WASHINGTON, June 23 (AFP): The US economy appears to be emerging from a period of sluggish growth but is "uncomfortably close" to the "stall speed" associated with past recessions, the International Monetary Fund (IMF) said yesterday.
In its annual report on the United States, the IMF cut its outlook for US gross domestic product growth but said it shares the assessment of US authorities "that the most likely scenario is a soft landing."
The IMF said its "baseline" forecast for the US economy is for GDP growth of 2.0 per cent over the course of 2007 -- down slightly from its 2.2 per cent forecast in April.
The forecast implies a pickup in activity after the 0.6 per cent growth pace of the first quarter.
The report said US activity "should pick up as the drag from housing dissipates, business investment recovers, and higher foreign growth supports net exports."
"However, growth is uncomfortably close to the 2.0 per cent 'stall speed' associated with past recessions, even if other accompanying factors-rising unemployment and high real interest rates-are not evident," the IMF said.
The report said US growth is likely to accelerate to 2.7 per cent in 2008, still considered below the optimum pace of 3.0 to 3.5 per cent. In 2006, the world's biggest economy expanded 3.3 per cent.
The US economy's soft patch appears to have come "fortunately" at a time when the rest of the global economy is accelerating, the IMF said.
IMF first deputy managing director John Lipsky said the stronger-than-expected US economic data in recent weeks, while not included in the report, suggest that the benign economic scenario is even more likely.
"We're feeling more comfortable that the assumptions we have made about the reacceleration are justified," he told journalists.
Among the risks still facing the US, the IMF said the slump in housing could spill over and affect consumer spending and high oil and commodity prices could push up inflation.
The report said the US Federal Reserve appears to have been prudent in holding its base rate at 5.25 per cent for the past year, and said this rate "appears consistent with a soft landing."
But it noted that the central bank has "rightly" emphasised inflation risks but must be alert to quickly shifting conditions.