International Monetary Fund Managing Director Christine Lagarde said the US is at risk of zero percent growth rate next year without a comprehensive deal to avoid the fiscal cliff.
“If the U.S. economy was to suffer the downside risk of not reaching a comprehensive deal, then growth would be zero,” Lagarde told CNN's Candy Crowley.
“It would be much better to actually have a more comprehensive approach and to deal with all the issues.”
Congress is facing a year-end deadline to come up with a deal to avoid $600 billion in tax hikes and spending cuts together known as the 'fiscal cliff'.
The US gross domestic product grew at an annual rate of 2.7 percent in the third quarter of 2012, according to the Department of Commerce. But if a deal is not reached, or is only a temporary fix, the US is at risk of plunging into another recession.
Democrats and Republicans are currently deadlocked over how to avoid the cliff with Democrats seeking to raise tax rates on the wealthiest Americans while Republicans want significant cuts to entitlement programs such as Medicare and Social Security.
“The best way out of this will be a balanced solution," Lagarde said on CNN's "State of the Union." Such a solution “takes into account both increasing revenue … and cutting spending, as well," she added.
According to Bloomberg, any deal cut in Congress should be comprehensive because a temporary or minimal deal would fail to provide much-needed certainty to investors.
Lagarde said that an agreement that extends tax cuts for the middle class but fails to address entitlement spending wouldn't reassure the rest of the world that the US was back on solid economic footing.
“I don’t think that is enough because there is still that degree of uncertainty that fuels doubt, that prevents investors, entrepreneurs, households from making decisions, because they don’t know what tomorrow will be,” Lagarde said. “It would be much better to actually have a more comprehensive approach and to deal with all the issues.”
President Barack Obama and Republican House Speaker John Boehner are still no closer to hammering out a deal. Boehner said on Friday that the administration was taking a "my way or the highway" approach, reports Reuters.
But the president said the majority of Americans agree with his plan to raise taxes on the wealthiest Americans.
"A clear majority of Americans - Democrats, Republicans and Independents - agreed with a balanced approach that asks something from everyone, but a little more from those who can," he said.