The International Monetary Fund (IMF) has cut its growth forecast for the US economy for this year and 2014.
In its July report, the IMF had predicted that the US economy would grow 1.7 percent in 2013 and 2.8 percent next year. But in its new report, World Economic Outlook, it shaved the growth outlook to 1.6 percent for 2013 and to 2.6 percent from for 2014.
It has also issued a stark warning that the current political gridlock in the world™s largest economic could drag growth down even further.
It said the reduction was due to the impact of the sharp sequester spending cuts instituted by the government earlier this year aimed at trimming the federal deficit.
IMF™s projections are based on two key assumptions. That the ongoing federal government shutdown will be short-term and that the debt ceiling will be raised before the 17th of October deadline hits.
The IMF assumptions however could fall apart as Democrats and Republicans seem unable to resolve their political differences to end a showdown over a spending law for next year that has already shut parts of the federal government for over a week now. The Republican-dominated House of Representatives refused to pass the spending bill insisting that they would only do so if President Barack Obama’s healthcare reforms, or the Obamacare, is delayed.
At the same time, the rival parties are mired in a bitter brinkmanship over raising the government™s borrowing limit of $16.7 trillion. If the limit is not raised by 17th of October, the government will run out of money to pay its bills and will therefore default on its debts.
œA failure to promptly raise the debt ceiling, leading to a U.S. selective default, could seriously damage the global economy,” the IMF has warned.
Last week IMF chief, Christine Lagarde, warned that œThe government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy.”
Approximately 800,000 federal workers have so far been furloughed since the partial shutdown began on October 1.
Copyright: Press TV