IMF draft cuts 2013 US growth forecast, citing higher taxes, spending cuts

MILAN (REUTERS) - The International Monetary Fund (IMF) is planning to cut its United States growth forecast for this year due to higher taxes and spending cuts, Italian news agency Ansa said, citing a draft of the IMF's next World Economic Outlook report.

The US economy, the world's biggest, will expand 1.7 per cent this year, down from the 2 per cent predicted in January, Ansa reported late on Saturday. The next round of IMF forecasts is scheduled to be published in mid-April.

Higher tax rates for wealthy Americans and US$85 billion (S$106 billion) in government spending cuts known as the "sequester" are slowing growth this year, but the US economy will still expand 3 per cent next year as previously forecast, the draft report said, according to Ansa.

The world economy will expand 3.4 per cent this year, down from a previous forecast of 3.5 per cent, and Japan will grow 1.5 per cent, up from 1.2 per cent previously, the report said. Next year, Japan will expand 1.1 per cent compared with 0.7 per cent previously, and Britain will grow by 1.8 per cent, down from 1.9 per cent in the last forecast, it added.

Forecasts for the main euro zone countries and for the euro zone as a whole were unchanged from January, according to the report, which cited Italian political uncertainty and tighter fiscal policy in the US as risks to growth. Italian elections held a month ago gave no single group a working majority in Parliament, leaving the euro zone's third-largest economy in limbo as the bank crisis in Cyprus renews fears of an outbreak of market turmoil in the currency bloc.

The global economy is facing "new risks and old perils persist", the IMF draft report said, according to Ansa, adding: "In the short term, key risks are related to developments in the euro zone, including the uncertainty tied to the results of the Italian elections, and to budget policy in the US."

An IMF spokesman declined to comment.

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