The International Monetary Fund (IMF) released a new report this week on the progress of the U.S. economic recovery, and the signs, while encouraging at times, indicate that there are still rough waters ahead for investors. The lingering impact of sequestration – mandatory budget cuts imposed by Congress – and dwindling economic prospects elsewhere in the world are, collectively, having a tough impact.
The U.S. economy is expected to grow by only 1.9 percent during 2013, compared to 2012's 2.2 percent. This forecast has been lowered several times in the past 12 months, considering that the IMF predicted a more robust 3 percent expansion for this year back in 2011. At that time, however, IMF analysts were unsure of how the U.S. government would approach its deficit issue.
There were encouraging statements in the report, including continued support for the Federal Reserve's quantitative easing program. These efforts, the IMF concluded, have maintained liquidity levels in the global financial system that are much needed during the current economic turbulence. The group also cautioned against so-called "tapering," saying that markets are unprepared for the volatility that could result.
"The nature of the recovery appears to be changing,'' the IMF staff commented, according to USA Today. "The automatic spending cuts not only exert a heavy toll on growth in the short term but the indiscriminate reductions in education, science and infrastructure spending could also reduce medium-term potential growth.''
Investors should, as always, take reports like this one with a grain of salt. Gross domestic product figures, while helpful, only provide a partial view of the economy and cannot account for the micro-level movements that have a greater impact on developments in stock and equity markets. Only by carefully evaluating risk can investors protect themselves from potential losses.
One way of accomplishing this is through the use of SmartStops, which are automatic trading alerts that safeguard investment portfolios from sudden market changes. Check out our site to learn more about these and other portfolio monitoring tools.
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