Tags: Fitch | fiscal | Cliff | Growth

Fitch: US Fiscal Cliff Could Trigger Global Recession, Halve World Growth

Thursday, 27 Sep 2012 09:37 AM

The unprecedented belt-tightening known as the fiscal cliff that looms over the United States could, at the very least, cut world growth in half in 2013, Fitch Ratings said on Thursday.

The fiscal cliff — a double whammy of tax increases and spending cuts totaling about $600 billion — could tip the United States and possibly the world into recession, Fitch said.

"The U.S. fiscal cliff represents the single biggest near-term threat to a global economic recovery," the ratings agency said a research note released in London.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

Most of the measures scheduled to take effect at the start of 2013 would reduce U.S. growth by $800 billion, or 5 percent, on an annualized basis, Fitch said, citing the U.S. Congressional Budget Office.

Fitch said a full-scale fiscal tightening was not the most likely scenario. The scale and speed of this action would probably push the U.S. economy into an avoidable recession, slicing about two percentage points off the firm's growth forecast of 2.3 percent next year.

"We therefore think the cuts will be pared back to a more manageable 1.5 percent of GDP," Fitch said.

“A U.S. fiscal shock would be exported to the rest of the world via a sharply weaker U.S. dollar and asset prices, lower U.S. price and wage inflation and heightened risk of deflation, and the impact on commodity prices,” Fitch warned.

The size and timing of the shock would be different for different countries, Fitch warned.

"Export-orientated countries like China and Japan would experience the steepest falls in GDP in 2013. Growth would then resume at baseline rates, but at a lower level. Commodity exporters like Russia and Brazil would be less affected in 2013, but the effects would be felt into 2014," Fitch said.

Meanwhile, top U.S. executives have less confidence in the business outlook now than at any time in the past three years — and a key reason is fear of gridlock in Washington over the fiscal deficit and tax policy.

The uncertainty, coupled with slowing demand in Asia and Europe, is forcing corporate leaders to postpone decisions on major investments and hiring, and hurting sales of everything from textbooks to telephone lines.

"If we don't deal with the fiscal cliff and don't deal with predictability on taxes for both citizens and business, with the rest of the world in a struggling state, this is really bad for us," John Chambers, CEO of network equipment maker Cisco Systems Inc. told Reuters.

Some 34 percent of U.S. CEOs plan to cut jobs in the United States over the next six months, up from 20 percent a quarter ago, according to a Business Roundtable survey released on Wednesday. Only 30 percent plan to raise capital spending, compared with 43 percent previously.

The group's index of CEO confidence fell to its lowest point since the third quarter of 2009, when the United States had just emerged from its worst recession in 80 years.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

© 2017 Thomson/Reuters. All rights reserved.

 
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The unprecedented belt-tightening known as the fiscal cliff that looms over the United States could at the very least cut world growth in half in 2013, Fitch Ratings said on Thursday.
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2012-37-27
Thursday, 27 Sep 2012 09:37 AM
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