IMF raises its outlook for the US economy

The International Monetary Fund (IMF) is raising its outlook for the US economy, as a budget deal in Washington and the Federal Reserve’s plan to taper its bond buying ease doubts about the future, IMF managing director Christine Lagarde said.

“We see a lot more certainty for 2014,” Lagarde said yesterday. With the unemployment rate falling, the Fed’s action last week and the government budget agreement, “all of that gives us a much stronger outlook for 2014, which brings us to raising our forecast,” she said.

In October, the IMF said the US economy would expand 2.6% next year, compared with 1.6% in 2013. While Lagarde didn’t specify any new figures in the interview, the Washington-based fund typically issues revised forecasts in January.

The jobless rate, at 7% in November after 7.3% the month before, will keep falling as confidence increases that the economy is on a sustainable growth path, Lagarde said. She urged the US Congress to be “responsible” and “not threaten the recovery with yet another debate about whether or not the US” will honour its obligations or default on debt as the Treasury Department nears the limits of its borrowing authority in February.

Commerce department figures released Dec 20 showed the world’s largest economy grew in the third quarter at the fastest rate in almost two years. Gross domestic product climbed at a 4.1% annualised rate, up from a previous estimate of 3.6%, the report showed.

The Fed said on Dec 18 it plans to trim its monthly bond purchases to $75bn from $85bn starting in January, taking the first step toward unwinding the unprecedented stimulus put in place by Chairman Ben S Bernanke.

Lagarde, 57, praised the Fed’s “very well communicated” plan. “What has been announced in terms of tapering is an indication that the central bank in the US has more trust, more confidence in the real economy picking up now,” she said.

The IMF chief also indicated support for the bipartisan budget passed last week that eases $63bn in automatic spending.

“Making sure that there is growth, that there is adequate redistribution through various systems, is important,” Lagarde said when asked about the minimum wage and income inequality. “There is a clear indication that rising inequality leads to less sustainable growth.”

Lagarde said countries need to have more balanced gender participation to strengthen growth potential.

“There are countries, particularly advanced countries, like Japan, like Korea, that need to open up that job market to women,” she said. “In the US, as in other European countries, the participation of women in the job market, the access for women to credit, is going to be conducive to more growth, to more well-being for the people.”

- Bloomberg