US economy recovering well but risks remain: IMF
9:33a ET July 8, 2010 (MarketWatch)
WASHINGTON (MarketWatch) -- The U.S. economy is gathering strength but the high unemployment rate will continue to restrain consumer spending, according to a report prepared by the staff of the International Monetary Fund released Thursday.
The report comes at the end of an annual checkup of the U.S. economy conducted by the IMF staff. The IMF executive board will review the report and make recommendations for actions later this summer.
The general theme of the diagnosis is that the U.S. economy and financial system have improved since the Great Recession but are not out of the woods by any means.
Household and financial balance sheet weaknesses and the high unemployment rate will continue to restrain consumer spending, the IMF said.
The IMF forecast GDP growth of 3.25% in 2010, decelerating a bit to 3% in 2011. Inflation will remain very low while the unemployment rate will remain above 9%.
The European debt crisis has tipped the risks in the forecast to the downside, the IMF said.
The international agency separately examined the U.S. financial system for the first time and found "important parts of the banking system remain vulnerable to shocks."
Commercial real estate loans and underwater home mortgages were cited as two areas of concern.
The IMF said that regulatory reform efforts in Congress would take "major steps" in eliminating gaps in regulation exposed by the financial crisis. But the proposals missed a chance to streamline supervision, which leaves a heavy burden on the different agencies to cooperate effectively, the IMF said.
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