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IMF report warns on U.S. deficits
Report suggests stimulative effect of deficits will erode as budget tightens, interest rates rise.
April 14, 2004: 3:47 PM EDT

WASHINGTON (CNNfn) - A new report from the International Monetary Fund suggests deficit spending by the United States has supported global recovery over the past several years but warns that its adverse effects on long-term interest rates cannot be delayed for long.

The World Economic Outlook (WEO), released Wednesday in advance of the IMF and World Bank spring meetings later this month, suggests that at some point the beneficial stimulative effect of U.S. deficits will likely be eroded as the budget tightens and interest rates go up.

International Monetary Fund (IMF)
World Bank

The IMF says this will have a damaging effect on emerging economies around the world and suggests that the U.S. phase out its highly stimulative fiscal policy gradually over the next few years.

The WEO also looks at the growing financial power of China, which the report suggest is likely to grow even more impressive as Chinese per capita income levels catch up with that of other emerging market economies.

The report suggests that the countries that are most likely to suffer as China grows are nations that currently compete with China on the basis of inexpensive labor costs and other economic factors.

Such countries should, according to the IMF, increase the flexibility of their economies through structural reforms and speed up their own integration into the global economy.  Top of page

--From CNNfn Senior Producer Scott Spoerry

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