Sliding U.S. economy at new risk - IMF

WASHINGTON, SEPT. 26. The economic expansion of the U.S. was skidding lower before the devastating attacks on September 11 and now it is impossible to predict what ultimately may happen to the economy, the International Monetary Fund said on Wednesday.

``The sharp slowdown in U.S. economic activity that began in mid- 2000 continued through the first eight months of 2001, and the September 11 terrorist attack has further increased downside risks," the IMF said, but added that ``it is too early to assess the economic consequences." The carefully hedged assessment of U.S. prospects was in the IMF's World Economic Outlook, a regularly released publication that looks at economic conditions around the world.

The outlook has darkened everywhere as a result of the deadly attacks by hijacked airplanes against the World Trade Center in New York and the Pentagon, the IMF said. Its latest report was largely compiled before the attacks and it had to update the report with an addition to it on Wednesday morning.

Growth already revised down

The IMF revised down its estimates for U.S. economic growth for both this year and 2002 from the figures it gave in April.

It said gross domestic product would expand 1.3 per cent this year instead of 1.5 per cent and that growth in 2002 would be 2.2 per cent instead of 2.5 per cent. But the figures were not adjusted for the September 11 attack.

"Clearly, recent events will have an impact on activity in the short term, and add to the already significant downside risks both in the U.S. and elsewhere," the IMF said.

In a statement issued on Wednesday morning, Kenneth Rogoff, chief economist for the IMF, said the precise impact of the the September 11 attacks on the U.S. or elsewhere can not yet be gauged. But he implied the damage might not be lasting.

``There will clearly be a short-term effect on activity, particularly in the last part of this year, both in the U.S. and in other countries," Rogoff said.

"However, there is still a reasonable prospect that a recovery will begin in the first half of next year," he added.

In the U.S., the IMF noted the slowdown from mid-2000 was driven by "a significant weakening in business investment, marked by a sharp falloff in equipment and software purchases and a rapid depletion of inventories." Under such conditions, there could be a benefit for the U.S. if it was able to reduce its huge current account deficit on trade with other, faster-growing partners.

"Such a scenario could - if accompanied by improved growth performance in other major countries and an orderly depreciation of the U.S. dollar - be consistent with a gradual reduction in the current account deficit to more sustainable levels, accompanied by a steady improvement in the household savings rate," the IMF said.

- Reuters

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