IMF says U.S. boom could pose risk to rest of the world

Tuesday, September 12th 2000, 12:00 am
By: News On 6

WASHINGTON – World financial markets, which have rebounded from the stomach-churning days of the 1997-98 Asian currency crisis, still face significant risks, including dangers posed by inflation and rising trade deficits in the United States, the International Monetary Fund said Monday.

Releasing its annual report on "International Capital Markets," the IMF warned that the current period of relative calm in global markets could suddenly be disrupted if foreign investors lose confidence in the U.S. economy, which has served as the primary engine for global growth.

The United States has for a number of years outperformed the rest of the world in terms of growth and the ability to generate millions of new jobs in the midst of the longest economic expansion in history.

However, the one dark cloud has been a huge and growing trade deficit, which has been setting records this year. The broadest measure of foreign trade, the current account, hit an all-time high of $331.5 billion in 1999 and is forecast to set another record of around $425 billion this year.

The IMF said that so far these rising deficits have not posed a problem as foreign investors have been more than willing to hold dollar-denominated investments because of the underlying strength of the U.S. economy.

But the IMF warned, "A key risk for international financial markets is a sharper-than-expected rise in U.S. inflation."