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IMF slashes US growth forecast

The International Monetary Fund (IMF) has cut its growth forecast for the US economy and urged policymakers to keep interest rates low and raise the minimum wage to strengthen expansion.

The US economy would grow by a weaker-than-expected 2 per cent this year, the IMF warned on Monday. The figure is well below the institution's previous estimate of 2.7 per cent, although slightly higher than the economic growth in 2013, which stood at 1.9 per cent.

The organization pointed to recent data showing a "meaningful rebound" in activity, adding that it would only partly offset a contraction that occurred in the first quarter. The factors causing the economic slowdown included an ageing population as well as high levels of poverty and long-term unemployment, the IMF said.

Although the unemployment rate has dropped to 6.3 percent from 7.5 percent in 12 months, the Fund said that labor markets were weaker than is implied by the headline unemployment number," citing the low workforce participation rate and stagnant wages.

Furthermore, it warned that US wages remained stagnant and the rate of long-term unemployment high. Therefore, the global crisis lender urged lawmakers to lift the minimum wage and increase the tax credits for those with low wages.

The IMF projects that the United States won't reach a level of employment that would meaningfully lift wages until 2017 and that inflation pressures will stay muted until then.

The institution also advocates a rise in the minimum wage, noting that, in real terms, wages have fallen significantly over the past four decades, a trend which economists say locks many Americans in poverty.

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IMF hails global recovery

The Fund said that nearly 50 million Americans were still living in poverty, and that the principal way government policy could help would be to return to stronger growth and job creation. Increasing the hourly minimum wage from the current federal government standard of $7.25 "would help raise incomes for millions of working poor," it argued.

The IMF also thinks the Federal Reserve might consider keeping rates near historic lows longer than expected. Raising rates too fast could "constrict the recovery momentum that we have observed," IMF chief Christine Lagarde said, adding that it would have spillover effects around the world and hurt growth in emerging economies.

She also said growth was likely to rebound to 3.0 percent next year, but that to ensure the strength of the economy, the government should take measures like increasing the minimum wage and embarking on a strong infrastructure-building program.

sri/uhe (AP AFP, dpa)

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