US deficit threatens global recovery
Charlotte Denny, economics correspondent
Thursday April 15, 2004
The Guardian
Washington received a double broadside over its ballooning government deficit yesterday when two of the world's leading economic thinktanks issued a blunt warning that urgent steps had to be taken to close the gap.
President Bush's trillion dollar tax cuts, the costs of the "war on terror" and the 2001 recession have all contributed to the sharpest slide into the red in America's finances since the second world war, the International Monetary Fund said last night.
While the rise in US borrowing had boosted global demand, easing some of the pain of the post-2000 global recession, the size of the US deficit was now a threat to the global recovery, according to the IMF's biannual assessment of the world economy.
"We have at present in the world serious global imbalances and they heighten the risk exposure of the world economy," said Raghu Rajan, director of the IMF research department. The fund estimates that if the US fails to tackle its budget deficit, higher world interest rates would shave 3.75% off its output and 4.25% off world output.
The size of the deficit also risked triggering a sharp slide in the dollar, the IMF said. Higher global interest rates would be needed to damp down the inflationary pressures generated by the size of US borrowing with damaging consequences for fragile emerging economies. Figures out yesterday showed the consumer price index, the most widely used gauge of US inflation, rose 0.5% in March after a 0.3% increase in February, the US labour department said.
The closely watched core CPI, which strips out volatile food and energy costs, surged 0.4%, the biggest increase in nearly two and a half years.
The IMF's warning was reinforced earlier in the day by the Organisation for Economic Cooperation and Development in Paris which said it was imperative to restore budget discipline as rapidly as possible.
etc.
Charlotte Denny, economics correspondent
Thursday April 15, 2004
The Guardian
Washington received a double broadside over its ballooning government deficit yesterday when two of the world's leading economic thinktanks issued a blunt warning that urgent steps had to be taken to close the gap.
President Bush's trillion dollar tax cuts, the costs of the "war on terror" and the 2001 recession have all contributed to the sharpest slide into the red in America's finances since the second world war, the International Monetary Fund said last night.
While the rise in US borrowing had boosted global demand, easing some of the pain of the post-2000 global recession, the size of the US deficit was now a threat to the global recovery, according to the IMF's biannual assessment of the world economy.
"We have at present in the world serious global imbalances and they heighten the risk exposure of the world economy," said Raghu Rajan, director of the IMF research department. The fund estimates that if the US fails to tackle its budget deficit, higher world interest rates would shave 3.75% off its output and 4.25% off world output.
The size of the deficit also risked triggering a sharp slide in the dollar, the IMF said. Higher global interest rates would be needed to damp down the inflationary pressures generated by the size of US borrowing with damaging consequences for fragile emerging economies. Figures out yesterday showed the consumer price index, the most widely used gauge of US inflation, rose 0.5% in March after a 0.3% increase in February, the US labour department said.
The closely watched core CPI, which strips out volatile food and energy costs, surged 0.4%, the biggest increase in nearly two and a half years.
The IMF's warning was reinforced earlier in the day by the Organisation for Economic Cooperation and Development in Paris which said it was imperative to restore budget discipline as rapidly as possible.
etc.
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