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U.S. recovery takes hold, risks remain - IMF

BY Ben Rooney, staff reporter

NEW YORK (CNNMoney.com) -- The recovery in the U.S. economy has been stronger than expected, although growth is expected to slow over the next few years, according to the International Monetary Fund.

In an annual review of U.S. economic conditions released Thursday, the IMF attributed the economic recovery to a "powerful and effective policy response" as well as improved financial conditions.

The IMF conducts annual reviews of the economic policies and performance of member nations. The findings are submitted to the IMF's board and subsequently presented to the country's authorities.

"While still modest by historical standards, the recovery has proved stronger than we had earlier expected," the IMF said.

However, the group cautioned that household finances are likely to remain under pressure due to persistently high unemployment.

The IMF expects U.S. gross domestic product to grow at a 3.3% annual rate this year. But growth is expected to slow to 2.9% in 2011 and 2.6% by 2015.

GDP grew 2.7% in the first three months of 2010, according to the U.S. Commerce Department.

Meanwhile, the U.S. jobless rate is expected to remain above 9% this year and next. Unemployment will decline to 8.4% in 2012 and 6.3% in 2015, according to IMF estimates.

The report cautioned that the glut of foreclosed homes and high unemployment "pose risks of a double dip in housing."

Commercial real estate is also a source of concern, the IMF said, as bank lending remains constrained.

In addition, the group warned that the debt crisis in Europe could hurt the U.S. economy by destabilizing the global financial market.

On the bright side, the IMF said growth could beat forecasts if consumer spending improves.

The IMF also raised concerns about the fiscal health of the United States.

"The central challenge is to develop a credible fiscal strategy to ensure that public debt is put - and is seen to be put - on a sustainable path without putting the recovery in jeopardy," the report said.

Since 2007, the national debt has more than doubled, to 64% of GDP, according to the IMF. That's the highest level since 1950.

Under current policies, the group said, the deficit could reach 95% of GDP by 2020.

The IMF welcomed a pledge by U.S. and world leaders to cut public debts in half by 2013 and stabilize debt levels by 2015, but said that much remains to be done to achieve those goals.

While the United States has already taken steps to freeze spending, the IMF said the Obama Administration may need to increase taxes to hit its deficit reduction targets.

At the same time, government spending on economic stimulus measures should be carefully targeted and the costs should be offset whenever possible, the IMF said.

The IMF praised the Federal Reserve for overseeing the various liquidity facilities the central bank launched during the financial crisis. The Fed is also well positioned to continue winding down such programs as the economy recovers, the fund said.  To top of page

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