The International Monetary Fund said on Thursday it believes a recovery in the U.S. housing market is key to eventually boosting economic growth in the United States and bringing down the country’s unemployment rate.
The IMF’s annual assessment of the U.S. economy released on Thursday forecast U.S. growth strengthening from current low levels of around 2.0 per cent to about 3.4 per cent by 2016 and 3.3 per cent in 2017.
“We know that over the next few years the formation of U.S. households and depreciation of the housing stock will imply there will be a need for about 1.5 million homes to be built on a yearly basis,” IMF economist Gian Maria Milesi-Ferretti told a conference call with reporters.
“That is clearly going to be something that will help U.S. growth over the medium term and of course a firming of the housing market will have all sorts of positive implications ... in other sectors connected to housing,” he added.
While the IMF released a statement on its assessment of the U.S. economy on July 3, the report published on Thursday is more detailed.
The IMF has urged the United States to quickly remove the uncertainty over the path of fiscal policy, which is set to tighten abruptly at the start of next year without congressional action.
IMF staff said without a political agreement on the so-called “fiscal cliff” of $4-trillion (U.S.) worth of expiring tax cuts and automatic government spending reductions next year, growth in the U.S. economy could slow to around zero and contract in 2013.
Most analysts do not expect Congress to act to soften the blow until after the congressional and presidential elections in November.
Mr. Milesi-Ferretti said it was unclear whether the slowdown in U.S. growth in the second quarter was just a temporary blip or a sign of a more protracted downturn.
“We think in the latter case there is clearly more scope for additional action” by the Federal Reserve, he said.
The IMF board of member countries said in a statement it agreed with the staff assessment that monetary policy in the United States needs to remain highly accommodative for “quite some time”.
While most of the board directors agreed there is room for further easing of U.S. interest rates if global conditions worsen, a number of directors said the effectiveness of additional easing could be limited given already very low interest rates.
The Fed stopped short of offering new monetary stimulus after its two-day meeting ending on Wednesday.