The International Monetary Fund (IMF) has warned that the U.S. economy is prone to a possibly overwhelming blow and could fall into depression if automatic tax increment and expenditure slashes come into action in 2013, as scheduled.
According to the IMF report, which delivered the bad news to President Obama, the U.S. economy will nurture at a mere two percent rate in 2012 and just a little more in 2013.
"The United States remains vulnerable to contagion from an intensification of the euro area debt crisis," the report warned. "Failure to reach an agreement on near-term tax and spending policies would trigger a severe fiscal tightening in 2013, threatening the recovery."
Obama’s reelection prospects chiefly depend on sustained economic growth, but key problem areas mentioned in the report are, to a large extent, outside the president's power.
It is pertinent to mention here that the U.S. economic recovery appears far-off and subject to political hindrances. Besides, the euro zone economic crisis and domestic fiscal policies have become a burden on the economy.
Economic experts believe that it is crucial to make certain a tempo of fiscal policy amendments in the short term, encouraging recovery, eliminating the risk of a very huge fiscal change in 2013, and sticking to a realistic medium-term fiscal aimed at restoring economic sustainability.
It should be noted that the IMF’s warning followed the report of Federal Reserve Bank of San Francisco, made public on Monday, which also alarmed the nation that cut in government expenditures would be a drag on economic recovery.
“Failure to reach an agreement on near-term tax and spending policies would trigger a severe fiscal tightening. . . with negative growth early next year and significant negative repercussions on an already fragile world economy,” the fund reported, according to the Washington Post.
IMF Managing Director Christine Lagarde said on Tuesday that regardless of huge debt, U.S. leaders still have the option to put more money into infrastructure development, workforce trainings and other related areas to continue pushing forward short-run economic growth.
Social Security and putting money into other prerogative activities is a longer-run subject, but the IMF said in its report that the forthcoming discussion over the debt ceiling — expected to take place after the presidential election — could tip up markets.