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IMF set to cut growth forecasts if U.S. ‘sequester’ trims spending

Christine Lagarde, International Monetary Fund managing director, holds a news conference in Washington Jan. 17, 2013. The IMF has long urged the United States to avoid sharp spending cuts that could destabilize a fragile global economic recovery.

GARY CAMERON/REUTERS

The International Monetary Fund said Thursday it will likely cut its growth forecasts for the United States and the global economy if automatic U.S. spending cuts take effect on Friday, and warned that the U.S.'s biggest trading partners would be hardest hit.

IMF spokesman William Murray said that if the cuts are fully implemented, the IMF would likely shave at least 0.5 percentage point off its current forecast of 2-per-cent growth for the U.S. in 2013.

"We will see what happens on Friday, but everybody is assuming that sequestration is going to take effect," Mr. Murray said at a regular news briefing. "What it means is that we are going to have to reevaluate our growth forecasts for the United States and other forecasts."

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The IMF's warning about the impact of the spending cuts on the U.S. and the rest of the world comes as Europe continues to struggle with the effects of a debt crisis and as growth has slowed in emerging economies like China, India and Brazil.

President Barack Obama and Republican congressional leaders have yet to reach a deal to avert $85-billion (U.S.) worth of spending cuts.

The revised IMF forecasts will be reflected in the Fund's World Economic Outlook due out in mid-April. The IMF's last batch of forecasts in January put global growth at 3.5 per cent this year, increasing to 4.1 per cent next year.

The Fund has long urged the United States, the world's biggest economy and a key trading partner of other economic giants, to reach a deal to avoid sharp spending cuts that could destabilize a fragile global economic recovery and possibly disrupt financial markets.

"Certainly 2013 will be affected," Mr. Murray said, "We have to see how far this sequestration is implemented, I don't think that is clear to anybody … because it isn't an immediate implementation of all spending cuts and we have to see how that political process plays out."

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