US Recovering Faster Than Economic Rivals, IMF Says

(April 21) -- Thanks in part to an injection of government stimulus money, the ailing U.S. economy is rebounding from the financial crisis more strongly than Europe and Japan, according to the International Monetary Fund, which also predicts the world as a whole is mending faster than it thought just three months ago.

The IMF now forecasts that the U.S. economy will grow by 3.1 percent this year, the euro zone will expand by 1 percent and Japan will grow by 1.9 percent. Such growth predictions for industrialized countries still pale in comparison with the expected growth of 10 percent in China and 9.9 percent in India, but they mark a significant resurgence of optimism among global economists.

"We find ourselves at an important new stage of the crisis," IMF Research Director Olivier Blanchard said today after describing the organization's new forecasts. "A global depression has been averted. The world economy is recovering, and recovering better than we had previously thought likely."

However, the IMF said the global economic outlook "remains unusually uncertain," especially with so many governments -- including the United States -- running up perilously high budget deficits to pump money into their economies in order to keep workers employed and get others back to work.

The IMF estimated that fiscal stimulus programs have boosted growth in the U.S. by a whole percentage point and, along with lower interest rates and policies aimed at helping the housing market and financial sector, have "provided a broad-based fillip" to the economy.

Still, it notes that domestic consumer spending -- the biggest contributor to U.S. economic growth -- remains well below pre-crisis levels and that the jobs market remains weak. Moreover, credit markets are still tight, with many banks unable to supply the loans needed by small and midsize businesses.

The past few weeks have brought news of a recovering American banking industry that has repaid a large part of the government funds it borrowed through the Troubled Asset Relief Program. And among automakers, General Motors said today it is paying back $4.7 billion of the $6.7 billion TARP loan it received last year, while fellow TARP beneficiary Chrysler announced an operating profit for the first quarter, though it lost nearly $4 billion since emerging from bankruptcy protection last year.

The IMF also praised the recent enactment of health care reform in the U.S., pointing to signs that it will modestly reduce budget deficits in the medium term by lowering medical costs.

The apparently accelerating U.S. recovery is bound to be the focus of attention next week when the Federal Reserve meets to set interest rate policy, especially as it seeks to balance the need for continued economic support against what might be a growing threat of inflation.

Europe, which also mustered significant economic stimulus from European Union member governments and the bloc as a whole, is coming out of recession at a slower pace, the IMF said.

On top of trade and budget deficits that in some European countries significantly exceed those in the U.S., the Continent is suffering from other "powerful forces holding back recovery," the IMF added. These include concerns over the ability of Greece and some other EU states to pay back their significant debt, and unresolved problems in the banking sector.

Japan, meanwhile, is being constrained by the most familiar of economic suspects there: weak domestic consumer spending. But the country's exports have helped support a tentative recovery, according to the IMF.

The IMF also called for international agreement on efforts to strengthen oversight of banks and the finance industries currently under way in Washington and several European capitals, noting that "the direction of reform is clear -- higher quantity and quality of capital and better liquidity risk management -- but the magnitude is not."