19 August 2003, 09:03  IMF warns on "ballooning" US deficit

The International Monetary Fund (IMF) today warned that the US economy will continue to perform below its potential if the federal Government does not rein in the ballooning budget deficit. "For the economy's full potential to be realised, decisive action will need to be taken over the coming years to re-establish a strong US fiscal position," the IMF said in its annual review of the US economy. Last month, the White House Office of Management and Budget projected that the budget deficit would hit USD455bn this fiscal year - the largest ever in dollar terms - then climb to USD475bn in fiscal 2004. "The worsening of the longer-term fiscal position, including as a result of the recent tax cuts, will make it even more difficult to cope with the ageing of the baby-boom generation, and will eventually crowd out investment and erode US productivity growth," the fund wrote. Decreased revenues for state and local Governments caused by the economic slowdown and the federal tax cuts could cause "the combined balance of the general Government" to record a deficit of 6.0pc of GDP in 2003, the fund said. ///www.fxcentre.com

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