US economy ‘will grow if worst of fiscal cliff is avoided’

15 Oct 12
US economic growth will slowly accelerate between now and the end of 2013, but only if the worst effects of the ‘fiscal cliff’ combination of spending cuts and tax increases are avoided, according to a survey of US economists published this morning.

By Nick Mann | 15 October 2012

US economic growth will slowly accelerate between now and the end of 2013, but only if the worst effects of the ‘fiscal cliff’ combination of spending cuts and tax increases are avoided, according to a survey of US economists published this morning.

The latest National Association for Business Economics Outlook survey, which includes the views of economists from big business, the banking sector and academia, expects growth of 1.9% this year and 2.4% in 2013, compared to the 1.6% actual gross domestic product growth recorded last year.

Shawn DuBravac, the chair of the survey, said: ‘Economists responding to the latest NABE Outlook survey expect economic growth to be tepid overall in 2012 and 2013, but predict growth to slowly accelerate through 2013, with GDP reaching a 3% pace by the fourth quarter of 2013.’

Their forecasts, were, however based on a general expectation that the worst impacts of the combination of an end of Bush-era tax cuts and spending cuts scheduled for January 2013, known as the ‘fiscal cliff’, will not be felt.

Nearly four out of five (77%) of respondents expect the automatic spending cuts that will take effect unless political agreement is reached on a new budget plan to be ‘greatly diminished’, with a similar percentage (82%) expecting plans for general spending restraint to be similarly watered down.

Over half of those questioned (55%) said they expected the Bush-era tax cuts to be held in place for another year for all income levels, with over a third (36%) expecting them to remain in place for lower income brackets but not high income earners.

On average, the economists surveyed expect the US budget deficit to fall to $950bn. Last week the US Congressional Budget Office estimated the budget deficit for the fiscal year ending September 30 was $1.1 trillion.

The CBO has also warned that, if the fiscal cliff does take effect, it could send the US economy into recession next year.

The issue of how to reduce the US budget deficit is proving to be a key battleground in this year’s US presidential election race, with Democrat incumbent Barack Obama and Republican challenger Mitt Romney already clashing over how they would cancel out the black hole in the country’s finances.

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