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IMF Says U.S. Housing Slump May Deepen, Spread to Other Countries
Published in Saudi Press Agency on 06 - 02 - 2009

The International Monetary Fund (IMF) warned Thursday that the U.S. housing slump may deepen and last longer than previously forecast, and the downturn could spread to other countries.
In a report to the Group of 20 (G20) developed and developing countries, the IMF said that home prices in the United States and other countries could continue to decline through 2010 as unemployment rises amid the global economic slowdown. “In the United States in particular, there is a risk of deeper and more prolonged housing correction,” it said.
The U.S. housing slump, which sparked the global financial crisis, is under pressure “as labor markets deteriorate further, mortgage financing remains restrained, and foreclosures rise steeply as the ‘negative equity' problem in housing spreads,” the report said.
“Negative equity” is the increasingly common situation of a homeowner owing more in mortgage interest than the home is worth at current depressed prices.
“There are risks that house price declines could intensify in other advanced economies and also spread to a broader range of countries, particularly if the availability of housing finance is squeezed through adjustment in the financial sector,” the IMF wrote.
“House prices could continue to fall sharply through 2010, undermining recovery in financial markets and contributing to the adverse feedback loop with the real economy,” the IMF warned.
Among the measures needed to address the economic crisis, the IMF reiterated its support for fiscal stimulus plans to spark growth. The international lending institution said that such projects could have “a considerable impact on G20 growth in 2009—on the order of 0.5 to 1.25 percentage points.”
The costs of the stimulus packages would be high. “To date, the G20 countries have adopted—or plan to adopt—fiscal stimulus measures amounting on average to around 0.5 percent of GDP (gross domestic product) in 2008, 1.5 percent of GDP in 2009, and 1.25 percent of GDP in 2010,” the report said.
Among the advanced economies, the fiscal stimulus plans were expected to have the biggest growth impact in the United States, Japan, Germany, Canada, and South Korea, the IMF said, while China, Russia, and South Africa would benefit most among emerging economies.


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