WASHINGTON — The International Monetary Fund warned Tuesday that the Obama administration could be slicing the deficit too fast for the weak US economy as it pared its growth forecast.
“Downside risks have intensified,” IMF managing director Christine Lagarde said at a news conference, citing external pressures from the eurozone debt crisis and its potential deterioration, and domestic issues linked to the debt ceiling and the fiscal cliff.
In an annual report on the world’s largest economy, the IMF trimmed growth forecasts to 2.0 percent in 2012 and 2.3 percent in 2013, down a tenth point from April’s estimates.
The slower growth outlook mainly was due to sluggish consumer spending, the key driver of gross domestic product activity.
“It is critical to remove the uncertainty created by the ‘fiscal cliff’ as well as promptly raise the debt ceiling, pursuing a pace of deficit reduction that does not sap the economic recovery,” the fund report said.
The country’s “tepid” recovery three years after exiting the Great Recession was under threat from the pre-programmed “fiscal cliff” combination of sharp spending cuts and tax increases at the year-end, and the need to raise the debt ceiling in the coming months.
The fiscal cliff is the result of Congress’s failure to agree on a deficit reduction plan, resulting in mandated tax increases and spending cuts to take effect by January 1, 2013.
Congress remains deadlocked over how to avoid the mandated measures, and the political impasse was not expected to end before the November 6 presidential election.
The IMF warned that leaving the measures to take effect could force a US contraction early next year, slamming an already fragile world economy.
Lagarde highlighted that the US fiscal and debt issues have eroded confidence in the country.
“The domestic effect would be severe, with negative spillovers to the rest of the world,” Lagarde said.
According to the Media, the deficit is high and according to GOP media, it’s higher than it’s ever been in US history. Funny, this.