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IMF looks to lower US growth expectations on sequestration
The International Monetary Fund (IMF) announced Thursday it will likely have to trim its expectations for growth in the United States and global economy as a result of sequestration.
"We'll see what happens Friday, but everybody's assuming sequestration's going to take effect," said IMF spokesman William Murray. "What it means is we're going to have to reevaluate our growth forecast for the United States and also our other forecasts."
The IMF currently pegs U.S. economic growth for 2013 at 2 percent, and Murray suggested that expectation could be trimmed by about half a percent if sequestration is fully implemented. However, he noted that it is still unclear exactly how much of the $85 billion in indiscriminate spending cuts will be allowed to take effect over 2013, meaning the IMF will not be able to precisely predict how much it will slow the U.S. economy right away.
"It's a political process that's playing out in the United States. We have to see how that political process will play out before we can be too definitive," he added.
The IMF has become the latest economic voice to air concerns about the automatic cuts set to take effect beginning Friday. Federal Reserve Chairman Ben Bernanke told lawmakers Tuesday and Wednesday that the automatic cuts would do significant damage to an already slow-growing economy, and would do little to actually address the long-term challenges facing the nation's finances. He called on Congress to replace the blunt cuts with more gradual deficit reduction.
While the U.S. economy will slow if sequestration is allowed to fully occur, Murray also warned that sequestration could have a global impact as well. In particular, nations with active trade relations with the U.S., like those in Europe, would feel a pinch as U.S. economic growth slowed.
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