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Thursday, September 14, 2006

IMF: Housing market could slow U.S. GDP

By GILLIAN WONG, Associated Press Writer 1 hour, 49 minutes ago
SINGAPORE - The U.S. economy is headed for a slowdown caused by a cooling housing market, the
International Monetary Fund' name=c1> SEARCHNews News Photos Images Web' name=c3> International Monetary Fund warned Thursday, and that could drag on global growth. But China's booming economy shows no sign of slowing down, and that prompted the IMF to raise its global growth forecast for this year and next.

The IMF revised downward its forecast for U.S. economic growth to 2.9 percent for 2007 from an estimate of 3.3 percent in April. This year, the U.S. is seen expanding 3.4 percent, the fund projected in its semiannual World Economic Outlook.
But as U.S. growth appears to falter, much of the rest of the world has picked up steam, it said.
In addition to China, both Japan and Europe are expanding and the IMF raised its forecast for global growth to 5.1 percent this year and 4.9 percent next year — both up a quarter point from April.
"This is really the fourth year of very strong global growth," said Raghuram Rajan, the fund's chief economist in Singapore, where the IMF and its sister institution, the
World Bank' name=c1> SEARCHNews News Photos Images Web' name=c3> World Bank, will be holding their annual meeting next week.
Still, the IMF warned that inflationary pressures, high oil prices and a possible abrupt slowdown in the U.S. economy could restrain global growth.
"This strong central forecast is surrounded by more uncertainty than usual, with risks tilted to the downside," Rajan said.
"The forecasted (U.S.) housing slowdown is well and truly here," he said. "Indeed, rising inventories of unsold houses suggest things will get worse before they get better."
Last month, the
Commerce Department' name=c1> SEARCHNews News Photos Images Web' name=c3> Commerce Department reported that sales of new homes dropped 4.3 percent while the inventory of unsold homes climbed to a record high.
The IMF also said further U.S. interest rate hikes might be necessary as inflation remains a threat.
Federal Reserve' name=c1> SEARCHNews News Photos Images Web' name=c3> Federal Reserve "faces a difficult situation of rising inflation in a slowing economy, but given the importance of keeping inflation expectations in check, some further policy tightening may still be needed," the report said. In August, the Fed decided to keep its key short-term lending rate at 5.25 percent after 17 straight hikes dating back to June 2004.
The U.S. could help reduce global imbalances by setting a more ambitious deficit reduction path and put the budget in a stronger position to respond to future economic downturns, the IMF said.

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