U.S. Economy Will Grow in 2005 at 3.6% Rate, Best in G-7, IMF Says

U.S. economic growth will average 3.6% this year, the fastest among the world’s leading industrialized nations, the International Monetary Fund said in a report that also called efforts to reduce the U.S. budget deficit “insufficiently ambitious.”

Companies will power the expansion as they spend record profits to retool plants and upgrade computers, offsetting slower consumer spending brought on by higher interest rates needed to curb inflation, the IMF said. The fund in September predicted U.S. growth of 3.5% for 2005.

“With incoming data generally robust, and business and consumer confidence strong, the outlook for 2005 is encouraging,” the IMF said in its World Economic Outlook, formally released Wednesday.

That pace of growth would lead the Group of Seven industrialized countries, and nations including Spain, Australia and Sweden. The U.S. economy advanced at an annual rate of 3.8% in the fourth quarter, capping the best year of growth since 1999. The U.S. economy, the world’s largest, grew 4.4% last year.

Canada will post the second-fastest growth in the G-7 this year at 2.8%, according to the IMF. The group also consists of Japan, Germany, Britain, France and Italy. Japan and Germany will lag behind at 0.8%, the IMF said.

The U.S. also will lead the G-7 in 2006, repeating this year’s 3.6% pace.

The U.S. lead over other major economies and the record fiscal shortfall will continue to inflate the country’s current- account deficit, also at a record, the IMF report said.

The Bush administration posted a record budget gap of $412.8 billion in fiscal 2004, which ended Sept. 30, or 3.5% of the country’s $11.7-trillion gross domestic product.

The government’s plan to reduce the budget deficit to about 2% of GDP by 2009 is “insufficiently ambitious,” the IMF report said.

The administration should instead strive to reduce the deficit by 1 percentage point of GDP each year, the IMF said.