IMF projects 'solid' US recovery in mid-2010

The International Monetary Fund projected Monday the United States would make a "solid" recovery from recession in mid-2010, but warned of major risks including the real-estate crisis and rising interest rates.
In its annual report on the world's biggest economy, the IMF projected US gross domestic product (GDP) would shrink at an annualized rate of 2.5 percent in 2009 and post modest 0.75 percent growth in 2010.
The outlook was better than the IMF April forecasts of a 2.8 percent contraction this year followed by flat growth in 2010.
"The staff's outlook remains for a gradual recovery" followed by a "solid recovery projected to emerge only in mid-2010," the multilateral institution said.
"Recent data suggest that the sharp fall in output may now be ending, although economic activity remains weak," the IMF said.
The IMF noted that recent economic indicators were pointing to a slowing pace of deterioration, especially in the labor and housing markets which are key to economic recovery and stability.
However, "the combination of financial strains and ongoing adjustments in the housing and labor markets is expected to restrain growth for some time," it said.
Economic slack would increase, pushing up unemployment to a peak "close to 10 percent" in 2010 and driving core inflation -- consumer prices minus food and energy -- to "very low levels," it said.
The overall consumer price index was expected to fall by a half percentage point in 2009 and rise by 1.0 percent in 2010.
The US economy, which entered recession in December 2007, is struggling with the worst downturn in decades. GDP -- a broad measure of goods and services output -- shrank by 5.7 percent in the first quarter after a brutal 6.3 percent contraction in the 2008 fourth quarter.
The IMF estimates were less rosy than the latest US official figures. The Federal Reserve on May 20 estimated the economy would contract between 1.3-2.0 percent in 2009 and grow at a modest pace between 2.0-3.0 percent in 2010.
The US Treasury Department, responding to the IMF report, emphasized the IMF's evaluation represented "an independent judgment."
The IMF said there was "unusual level of uncertainty" in its latest projections.
Among the "significant downside risks," the 185-nation institution cited the real-estate crisis, marked by spiking foreclosures and falling home prices, as well as a slump in the commercial sector; rising interest rates that are pressuring both the government and businesses; and the global economic and financial crisis.
“Much will also depend on developments abroad, including progress made in strengthening financial institutions and markets," it said.