A troubling report from the International Monetary Fund (IMF) released late last month suggests that the aftershock of the U.S. government spending reductions known collectively as sequestration could pose serious problems for the wider global economy. According to the study, at least 0.5 percent of GDP will be curtailed due to the cuts, but the true impact of sequestration may not be known until later this year.
William Murray, an IMF official who spoke with reporters on March 1 as the cuts were signed into law by President Barack Obama, said that the organization expects the U.S. economy to grow by roughly 2 percent during 2013. However, Murray cautioned that these estimates are based on current conditions and could change depending on whether or not American lawmakers adjust, alter or remove the spending reductions in the coming weeks.
"There will be an impact on global growth. We'll have to reevaluate our growth forecast for the United States and also our other forecasts. It's really going to affect U.S. growth," Murray stated. "We have to see how deeply the spending cuts are implemented."
Murray went on to add that most of the effects will be felt by the United States' major trading partners, such as the European Union (EU), Japan and China. Given the fact that the EU is suffering from a renewed recession, Japan remains constricted by a high-value currency and China's growth infrastructure is beginning to slow down, some economists fear that the sequestration's impact will be more severe than previously thought.
Investors in worldwide markets should tread carefully as austerity begins to be felt in America. As it's tough to predict how consumers will respond to slower economic growth, those with risk-heavy portfolios might want to consider ways to hedge against potential losses like investing in cash flow real estate. To learn more, visit GreatWealthStrategies.com and download a "Free Game Plan Report" today.