Fix 'fiscal cliff': IMF to US
Many analysts believe Washington will come up with a deal that would temporarily stave off what has become known as the fiscal cliff, although doubts persist as to whether Congress can agree on a timely compromise.
In a report prepared for the Group of 20 finance ministers' meeting in Mexico on Nov. 4-5 and published on Thursday, the IMF warned that the euro zone crisis and the threat of a political impasse in Washington over the looming fiscal cliff posed the biggest risks to the world economy.
The Fund said, however, there were signs that financial stress and global economic conditions may be stabilizing due to recent steps by major central banks to cut interest rates to spur growth, although economic activity remains sluggish.
The combined U.S. government spending cuts and tax rises to be implemented under existing law at the start of 2013 are seen by many as threatening to tip the economy back into recession.
The IMF has estimated that the tax increases and spending cuts amount to $700 billion in 2013. Unless avoided, this could contract U.S. gross domestic product by around 4.5 percent.
A last-minute deal that relies on suboptimal fixes or largely 'kicks the can down the road' may ultimately prove harmful, the IMF
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