IMF chief blasts U.S. spending cutsThe International Monetary Fund chief criticized the United States on Tuesday for cutting back government spending too much too fast, saying it was taking a toll on growth in one of the world’s main economic engines.
Christine Lagarde also said upbeat financial markets are out of whack with a sluggish global economy showing signs of slowing further.
In an overview of trouble spots around the world, Lagarde said the United States had come a long way in the five years since it triggered the global economic crisis with financial excesses.
“Despite this progress, the United States is not doing as well as it should, largely because of self-inflicted fiscal wounds,’’ she said, a reference to government belt-tightening. She was speaking at the Brookings Institution in Washington, where the IMF is based.
She particularly criticized across-the-board spending cuts imposed in March known as sequestration.
“Sequestration alone - if not reversed - could cut a half percent of GDP growth. It is also an extremely blunt instrument, imposing deep cuts in many vital programs, including those that help the most vulnerable, while leaving untouched the key drivers of long-term spending,’’ Lagarde said. ”If the sequester were to be replaced by more back-loaded measures, however, growth should strengthen in the second half of the year,’’ she added, with the caveat that she did not expect that to happen.
Nevertheless, she said U.S. prospects for the next couple of years look quite positive, but in the medium and long term spending on key health care programs and Social Security is expected to widen the budget deficit and increase the country’s debt burden.
For the global economy, she said, the IMF sees ”glimpses of more somber trends’’ that signal slowing growth.
“We are still seeing upbeat financial markets sitting uncomfortably beside a more downbeat real economy,’’ Lagarde said. “Recent data, for example, suggest some slowdown in growth. At the same time, the downside risks to growth remain as prominent as ever.’’ AP