Tags: Morici | economy | 2% | 2013

Morici: US Growth ‘Hard Pressed’ to Hit 2% Next Year

Tuesday, 18 Dec 2012 11:45 AM

The U.S. economy will barely grow 2 percent next year due to a likely lukewarm deal to avoid the fiscal cliff, said Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland and former chief economist at the U.S. International Trade Commission.

The nation is anxiously watching the White House and congressional Republicans negotiate ways to avoid the fiscal cliff, a combination of tax hikes and deep spending cuts due to take effect in January that could tip the country into a recession next year if a budget deal isn’t reached.

Any deal that fails to seriously cut spending, which appears likely with Democrats in control of the White House and Senate, could exacerbate an economic cooling marked by soft consumer demand, a weak labor market and spikes in growth rates that were largely due to inventory restocking and not due to an underlying firming in demand.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

“For all of 2013, the economy will be hard pressed to accomplish the 2 percent growth registered this year, and unemployment only will continue falling if more adults opt out of the labor market or settle for part-time work,” Morici wrote in his blog.

“This forecast depends on a fiscal cliff agreement that imposes only moderately higher taxes and at least some veiled attempt to curb spending.”

President Barack Obama and House Speaker John Boehner, R-Ohio, are reportedly coming closer to agreeing on tax hikes for top U.S. earners.

Republicans, who originally opposed raising taxes on anyone, warmed up to the idea by proposing tax hikes on those earning $1 million or more as part of a game plan to avoid the fiscal cliff.

Democrats, who originally championed raising taxes on those taking in over $250,000 a year, have now upped the floor to $400,000.

Still, don’t expect too much when it comes to cutting spending.

“President Obama and allies in Congress simply won’t accept that entitlement spending is out of control. Such cognitive dissonance colors long-term prospects, even as revealed by forecasts coming from Democratic economists,” he wrote.

“Should the President succeed in obtaining an immediate $100 to 150 billion in new taxes, and Republicans obtain a similar-sized quick cut in spending, brace for a recession. With so many folks already unemployed or underemployed, it could be difficult to lift the economy off the mat again, even with trillion dollar deficits.”

Noted market participants have pointed out that successful avoidance of the fiscal cliff won’t guide the country to greener pastures of robust growth and prosperity.

It just means the United States avoids a recession and stays on its path of sluggish growth.

“If we avoid the fiscal cliff, which is our expectations, if we avoid it we’re still looking at sluggish growth of 1.5 percent to 2 percent next year,” said Mohamed El-Erian, CEO of fund giant Pimco, according to CNBC.

“The deal is important, not only whether we get one or not, because if we don’t get one, this economy goes into recession. That’s the last thing we need.”

Even if both sides come to an agreement, more hurdles remain: the debt ceiling must be raised again, housing recovery remains questionable and the labor market stands lots of ground to make improvement.

“We need this as a building block for a lot of other decisions going forward: the debt ceiling, the annual budget, the labor market, housing finance,” El-Erian told the network.

“There’s a ton of things on the plate of politicians.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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