IMF downgrades economic outlook

The International Monetary Fund (IMF) has sharply downgraded its outlook for the US economy through 2012 because of weak growth and concern that Europe won't be able to solve its debt crisis. The international lending organization expects the US economy to grow just 1।5% this year and 1।8% in 2012. That's down from its June forecast of 2.5% in 2011 and 2.7% next year. The IMF has also lowered its outlook for the 17 countries that use the euro. It predicts 1.6% growth this year and 1.1% next year, down from its June projections of 2% and 1.7%, respectively. The gloomier forecast for Europe is based on worries that Greece will default on its debt and destabilize the region. Overall, the IMF predicts global growth of 4% for both years. Stronger growth in China, India, Brazil and other developing countries should offset weaker output in the United States and Europe. The US economy grew at an annual rate of just 0.7% in the first six months of the year. And the US unemployment rate has stayed above 9% for all but two months since the recession officially ended two years to Financial turmoil and slow growth are feeding on each other in both the United States and Europe, IMF officials say. Europe's debt crisis is causing banks to reduce lending and hold onto cash. Sharp stock market drops in the United States over the summer have hurt consumer and business confidence and will likely reduce spending. That slows growth, which leads many investors to shift money out of stocks and into safer investments, such as Treasury bonds. In Europe, slower growth will make it harder for stressed nations to get their debt under control. US and European policymakers need to act more decisively to cut budget deficits, the IMF said. And European officials need to ensure that the region's banks have enough capital to withstand the debt crisis. The IMF said in its report that the US economy faces longer-lasting problems that go beyond high gas prices and disruptions caused by the Japan crisis. Employers are adding few jobs and giving out meager pay raises. Many homeowners owe more on their mortgages than their homes are worth. Banks are keeping credit tight.