Congressional Budget Office warns of new US Recession in 2013 with US fiscal cliff

US fiscal cliff risks new recession, says report

Deadlock in Congress in saw mandatory spending cuts imposed for the end of 2012

22 August 2012 Last updated at 21:26
http://www.bbc.co.uk/news/world-us-canada-19349587

Spending cuts and tax rises due to take effect in 2013 could trigger a sharp slowdown in the US economy, Congress’s budget office has said.

It warned that unless Congress acts to avert a “fiscal cliff”, the US could see its gross domestic product (GDP) shrink by 0.5% next year.

The Congressional Budget Office (CBO) said the US would see growth drop by 2.9% in the first half of next year.

The issue could spark a bitter partisan standoff in a general election year.

In its report, the CBO said it expected the US recovery “to continue at a modest pace” for the rest of 2012 and estimated that unemployment would remain stuck at above 8%.

But it warned that “substantial changes to tax and spending policies” would cause the US to tip back into recession in 2013.

The changes would trim the annual budget deficit to about $641bn (£406bn) – a reduction of about $500bn – the report said.

“Fiscal tightening will lead to economic conditions in 2013 that will probably be considered a recession, with real GDP declining by 0.5% between the fourth quarter of 2012 and the fourth quarter of 2013, and the unemployment rate rising to about 9%,” the report said.

It forecast that the US economy would shrink by an annual rate of 2.9% in the first half of 2013, but then grow at a rate of 1.9% in the second half of the year.

The main reason for the gloomier forecast in its latest report was due to an extension of a payroll tax cut and federal unemployment benefits, passed earlier this year, the CBO said.

It also said that the global and US economic outlooks had declined more generally since its last report.

The CBO offered what it called an “alternative fiscal scenario” in which not all of the changes would come into effect.

In that case, it projected that the economy would grow at about 1.7% and unemployment would hold steady around 8%.

Chairman of the Federal Reserve, Ben Bernanke, has repeatedly urged lawmakers to take action to change the current laws that he fears would detrail economic growth.

But correspondents say that, with a presidential election looming, it is unlikely that Congress will take imminent action on the issue.

3 comments

  • What do I keep informing you about? I have told you that I expect Greece to exit the Euro January 1st 2013 or nearby. I have told you the Financial Services Compensation Scheme promotion starts this month of August in the UK. I have told you they have at least four months to brainwash the flock into leaving their savings in the banks this way. Expect big trouble early on into 2013. You must be out of the banks way before that time and ideally before November. Once the US elections are over anything can happen both with the economy or the Middle East or both.

    -= The Unhived Mind

  • MetalHeadViking

    I really dont understand what role the DVD plays. It seems to link to the inteligence communities with the parasite banks in both North America and Europe.

    Does the DVD have a specific agenda like Bilderberg and the Club of Rome?

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