3 Jul 2012

IMF / US

The U.S economy continues to recover at a tepid pace. But concerns about the euro area debt crisis and uncertainty over domestic fiscal plans are creating a challenging environment for the world’s largest economy, the International Monetary Fund (IMF) said after wrapping up its annual review of the U.S. economy. IMF

Posted at: July 3, 2012 3:32 pm

Duration: 01:58

Available in: SD

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STORY: IMF / US
TRT: 1.58
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: 3 JULY 2012, WASHINGTON, DC

SHOTLIST:

1.Wide shot, press conference
2.Wide shot, reporters
3.SOUNDBITE: (English) Christine Lagarde, Managing Director, IMF:
"First of all, the US economic recovery remains tepid and downside risks have intensified. There are two types. One is clearly external and comes from the current European situation and its potential deterioration. The second is domestic and is closely associated with number one, the debt ceiling, and number two, the fiscal cliff."
4.Med shot, reporters
5.SOUNDBITE: (English) Christine Lagarde, Managing Director, IMF:
"Continued policy action is needed to boost the recovery. We believe that the US authorities do not have a lot of space available. They have limited space to act, but they should use it to support the recovery in the near term and promptly tackle the medium term challenges both in terms of fiscal sustainability and financial sector reform."
6.Med shot, reporters
7.SOUNDBITE: (English) Christine Lagarde, Managing Director, IMF:
"For that portion of unemployment that we fear could be non-cyclical, we also believe that it would be in the interest of the US economy that appropriate measures be taken in vocational training, in terms of specific job search support and other instruments and policies that can be used to address the gap between the skill sets of the manpower and the needs of the labor market."
8.Med shot, reporters 
9.Wide shot, press conference ends

STORYLINE:

The U.S economy continues to recover at a tepid pace. But concerns about the euro area debt crisis and uncertainty over domestic fiscal plans are creating a challenging environment for the world's largest economy, the International Monetary Fund (IMF) said after wrapping up its annual review of the U.S. economy.

An IMF team, led by Gian Maria Milesi-Ferretti, Assistant Director of the Western Hemisphere Department, met with Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and other senior U.S. officials from 21 May to 11 June to conduct the annual review.

"First of all, the US economic recovery remains tepid and downside risks have intensified. There are two types. One is clearly external and comes from the current European situation and its potential deterioration. The second is domestic and is closely associated with number one, the debt ceiling, and number two, the fiscal cliff," said IMF Managing Director Christine Lagarde during a press conference in Washington, D.C. She made these remarks after joining the final policy discussions.

The IMF expects US growth to remain modest during the next two years, constrained by housing difficulties, the expiration of fiscal stimulus measures, and continued low global demand particularly in Europe. Growth is projected at 2 percent in 2012 and about 2¼ percent in 2013.

The main policy challenge is to use the limited policy space to support the recovery in the near term, while restoring medium-term fiscal sustainability and completing financial sector reforms. The recession significantly worsened the state of US public finances and exposed vast gaps in the financial and regulatory frameworks, the IMF said.

"Continued policy action is needed to boost the recovery. We believe that the US authorities do not have a lot of space available. They have limited space to act, but they should use it to support the recovery in the near term and promptly tackle the medium term challenges both in terms of fiscal sustainability and financial sector reform," Lagarde said.

The IMF stressed that it is critical to remove the uncertainty created by the "fiscal cliff" in 2013, when temporary tax provisions expire and automatic spending cuts take effect. Should the fiscal cliff materialize, the IMF warned that it could have severe consequences for domestic growth. The authorities therefore need to ensure that the pace of deficit reduction does not sap the economic recovery.

At the same time, the IMF said that a comprehensive and credible fiscal consolidation plan is crucial to ensure that the public debt-to-GDP ratio stabilizes by mid-decade and gradually falls afterwards.

Given the size of the budget deficit, age-related spending pressures, and the relatively low tax ratio, the fiscal consolidation effort would need to rely on both higher revenues and cuts in entitlement spending. Some options include heath care and Social Security reforms, reducing tax expenditures, and possibly introducing a value-added tax and carbon taxes.

With inflation kept in check by the sizeable economic slack, and unemployment projected to decline only slowly, the IMF supports the Federal Reserve's intention to keep the monetary policy stance accommodative for an extended period.

"For that portion of unemployment that we fear could be non-cyclical, we also believe that it would be in the interest of the US economy that appropriate measures be taken in vocational training, in terms of specific job search support and other instruments and policies that can be used to address the gap between the skill sets of the manpower and the needs of the labor market," Lagarde said.

Filed under 18.04.00 - FINANCING UNITED STATES WORLD BANK.