All-out U.S. 'fiscal cliff' could cut world growth in half: Fitch

Thu Sep 27, 2012 9:18am EDT

(Reuters) - 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.

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.

(Reporting by Herbert Lash in New York; Editing by Lisa Von Ahn)

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Comments (3)
SubbuJois wrote:
As I see it, either ways the fiscal cliff will hit the economy! If the Tax Cuts are extended, the there are some benefits but US economy will continue to suffer. Otherwise, quite a few initiatives will suffer and a $800 Billion hole develops. Myopic governments are doing little to alleviate the sufferings of the common man, bickering away their differences to no ends! Plant a boot , size 20, on their backsides with a few hundred horsepower! Please! We have the worst kind of leadership on display by the political class!

Sep 27, 2012 10:05am EDT  --  Report as abuse
stambo2001 wrote:
They’ve kind of reached the perfect storm here where making cuts will harm growth but not making cuts will also harm growth. They either make the draconian cuts now and get it over with OR they drag the bloodletting on for another generation. As not one of them has an ounce or courage or the strength to do what’s necessary you know fully well they will try and legislate any hard decisions further down the road. I guess they either hope the problem will magically go away OR some super savior will appear and save them all. Either way they’re simply waiting for magic.

Sep 27, 2012 10:11am EDT  --  Report as abuse
birder3000 wrote:
So there we have it. We can not cut spending or raise taxes. We absolutely must keep borrowing and spending no matter what. And for good measure the Fed will keep on buying up all those bonds we issue. Sounds like a plan to me.

Sep 27, 2012 10:24am EDT  --  Report as abuse
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