IMF Raises Its Own Sequestration Red Flag, Saying It Would Have to Revise Downward US 2013 Economic Growth

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IMF raises its GDP growth forecast for the U.S.
The IMF raised its GDP growth forecast for the U.S.

There are plenty of red flags left, right and center being raised about the impending start to U.S. budget sequestration on Friday, and now the International Monetary Fund is raising its own, saying its U.S. economic growth forecast will be revised downward by at least a half of a percentage point.

Everybody is assuming that sequestration is going to take effect," IMF spokesman William Murray told a Thursday news briefing at the organization’s Washington, D.C., headquarters, according to Reuters. "What it means is that we are going to have to reevaluate our growth forecasts for the United States and other forecasts.”

Sequestration as it stands would cut $1.2 trillion out of federal spending over a decade, split between military and nonmilitary discretionary spending, the part of the U.S. budget determined by Congress and the White House every year that makes up roughly a third of total spending.

The cuts would lead to across-the-board layoffs or furloughs in the government, a reduction of spending on federally subsidized military and nonmilitary public-private contracts in the states and cuts to government services, such as air traffic control.

Overall, the IMF says the effect would lead to economic slowdown in the U.S., which would have a ripple effect across the globe, causing downward revisions in other countries with close trade links to the U.S. It currently estimates the U.S. will grow by a lackluster 2 percent, but that could go down to at least 1.5. percent if the cuts go into effect as they currently stand.

The Conference Board, a nonprofit New York City-based business research organization, forecasted in January that U.S. GDP growth this year is expected to be 1.6 percent. The U.S. contributes 0.3 percentage points to the projected 3 percent global GDP growth, according to the organization.

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