• Home
• /
• Business

US economy may shrink in 2nd half '08: IMF's Lipsky

JACKSON HOLE, Wyo - Recent U.S. growth has been better than expected but the country could still see activity shrink in the second half of the year, a top International Monetary Fund official said on Friday.

---

---

'Our expectation is that growth will slip back to a considerably below-trend rate and there is even the possibility of a mild contraction in the second half of the year,' IMF First Managing Director John Lipsky told Reuters on the sidelines of an annual central banker retreat here.

He carefully avoided using the word recession, which by tradition is often characterized as two consecutive quarters of negative growth. The arbiter of the U.S. business cycle, the National Bureau of Economic Reserve, draws on a much broader range of measures to assess whether to declare a recession.

Second-quarter U.S. growth notched a better-than-expected 1.9 percent annualized pace and economists think it could be revised even higher.

Lipsky said that his gloom over the second half of the year was despite the resilience between April and June.

The IMF last month raised its forecast for 2008 U.S. growth to 1.3 percent from a mere 0.5 percent previously expected, but said that next year would be slightly softer. Lipsky did, however, see 2009 bringing improvement.

'Our expectation is that that very sluggish period is likely to give way to a very gradual re-acceleration back to trend growth in the space of the coming year,' he said.

'Economies tend to want to grow. In the U.S. context, one of the surprises ... has been the strength of productivity growth, which has kept unit labor costs moving at a slower pace and corporate profit have held up better,' he said.

The IMF said last month that the case for Fed rate hikes was unclear. The U.S. central bank has slashed its benchmark overnight fed funds rate 3.25 percentage points to 2 percent to shield the economy from a housing crisis and credit crunch.

Lipsky, attending the annual monetary policy symposium hosted by the Kansas City Federal reserve in the Teton Mountain resort of Jackson Hole, said there had been no overt criticism of the Fed's lack of action.

'The Fed has responded with alacrity and decisiveness to the unfolding events. Some of those actions are going to be controversial. But what you don't hear are criticism that the Fed has been a laggard, unaware or passive,' he said.