US economy has slowed, not to be near normal until 2015 – IMF

03 July 2012 17:23  [Source: ICIS news]

WASHINGTON (ICIS)--The US recovery has slowed and remains tepid, and the nation’s economy is vulnerable to ongoing eurozone troubles, the International Monetary Fund (IMF) said on Tuesday, adding that US GDP growth will not reach near normal growth of 3% until 2015.

In its latest periodic review of the US economy, the IMF said that after rebounding in the second half of 2011, the nation’s “growth slowed to around 2% in the first half of this year”.

Following a near-normal GDP expansion of 3% (annualised) in the fourth quarter of 2011, US GDP growth declined to 1.9% in the first quarter this year, and some economists speculate that second quarter results could be even lower.

The IMF review said that “strong headwinds persist on private consumption, as households continue to deleverage”, noting that US consumer spending has declined as households work to cut debt loads and boost savings amid lowering economic expectations.

Although the long-suffering US housing sector has shown signs of recovery, that key construction industry remains at depressed levels, the IMF said, adding that access to mortgage credit is still tight despite historically low interest rates.

“Job creation has slowed since early 2012, and the employment-to-population ratio remains substantially below pre-recession levels,” the report said. US unemployment eased up to 8.2% in May.

The IMF noted that US business fixed investment “also seems to have lost some momentum, despite favourable financial conditions for the cash-rich corporate sector”.

“Exports have been a bright spot in the recovery but have recently been hampered by some slowdown in foreign demand, particularly in Europe,” the report added.

In all, the IMF warned that “US growth is likely to remain modest in the next two years, constrained by household deleveraging, fiscal restraint and subpar global demand”.

Consequently, the IMF said it forecasts US GDP growth for full year 2012 will be no better than 2%, then edge up to 2.3% next year and to 2.8% in 2014.

The report said that IMF economists do not see the US economy returning to normal “trend growth” of 3-3.5% annual GDP expansion until 2015-2016.

The IMF was established in the closing days of World War II to promote international monetary co-operation and stability, foster economic growth and employment and to provide financial assistance to countries to help ease balance of payments problems.

Under its multinational mandate, the IMF periodically reviews the economic conditions and stability of its 188 member countries.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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