NEW YORK/BANGALORE (Reuters) - The U.S. economy is expected to remain sluggish next year, despite widespread expectations for more monetary stimulus from the Federal Reserve later on Wednesday, a Reuters poll showed.
Most consensus forecasts for the first half of 2013 were downgraded to their lowest since Reuters began polling for this period more than a year ago. The forecast for the current quarter was slashed again.
That underscores a very fragile world economic outlook, given sharp slowdowns in many big emerging economies such as Brazil and India and only a tentative sign of re-emergence of China’s economic growth engine.
“Too much of the global economy is stumbling to support export demand,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank. “It’s Europe, it’s recession in Japan, (and) softer growth out of China for much of the year.”
“(U.S.) exports are likely to pose a drag on growth in the current quarter, which is something we haven’t seen since the collapse in trade during the recession,” he said.
Much depends on whether politicians can sort out a deal to avoid the “fiscal cliff”, a series of automatic tax hikes and spending cuts next year. Uncertainty around that has already damaged business confidence and curtailed hiring.
Indeed, the poll showed growth is expected to have slowed to just 1.2 percent on an annualized basis in the quarter that ends this month, down sharply from 1.6 percent in the November poll, and well below the economy’s potential.
Weak exports have dragged on growth, not to mention superstorm Sandy, which hit the U.S. east coast in October and shut down most of New York City and surrounding area for days, damaging business and infrastructure.
The outlook for all of 2013 has been chopped to 1.9 percent, far below the Fed’s September prediction of 2.5-3.0 percent, and also the lowest consensus for 2013 polled so far this year.
Despite a third round of bond purchases from the Federal Reserve to boost the jobs market, employment expectations remained tepid. The consensus for average monthly non-farm payrolls growth was mostly unchanged at 127,000 for the first three months of 2013.
That comes despite a strong majority of forecasters, 47 of 51, expecting the central bank to buy more U.S. Treasuries when its Operation Twist program expires at the end of December.
The Fed is expected to buy $45 billion of Treasuries every month in addition to the already-announced purchases of $40 billion every month in mortgage-backed securities. But these new purchases will further expand the Fed’s balance sheet.
The poll also showed the Fed is likely to continue its monetary stimulus for at least a year, making for an additional $1 trillion of purchases. The Fed has bought bonds worth $2.3 trillion in two prior rounds of quantitative easing.
A majority, 31 of 49, also expect the Fed eventually to adopt numerical thresholds for inflation and unemployment, similar to results of a survey taken last week. <FED/R>
So far, markets have been sanguine that Washington will avoid the fiscal cliff. U.S. stocks have erased all their losses after the November 6 presidential election and the S&P 500 .SPX is up almost 1 percent so far this month.
But signs from lawmakers have been mixed with nothing concrete to indicate a deal will be reached by the end-of-the-year deadline.
U.S. House of Representatives Speaker John Boehner offered no signs of progress on Tuesday but said he remains hopeful that both sides would reach an agreement.
But Senate Democratic leader Harry Reid said it would be difficult to get a deal before Christmas.
If a deal is not reached it could lead to $600 billion being sucked out of the economy in 2013 in what is essentially a self activating austerity program built into current law.
Polling and analysis by Aakanksha Bhat and Rahul Karunakar Editing by Ross Finley/Jeremy Gaunt