U.S. Will Enter into Recession in 2013 if Not Canceled the Fiscal Adjustment Measures
The U.S. economy into recession in the first half of 2013, to 1.3% of GDP, no agreement is reached to prevent the entry into force of tax increases and spending cuts agreed last year, reported the Congressional Budget Office (CBO).
“Some spending cuts and tax increases represent an additional brake immediately to weak economic growth,” the CBO, a non-partisan in its latest analysis of the U.S. economy.
The office warned Congress about the dangers of the “tax cliff” due in January 2013 when the suspension is expected to extend tax for most Americans and implemented sharp spending cuts to reduce the budget deficit.
This “tax cliff” is the product of agreement on raising the debt ceiling at the last minute signed last August by Republicans and Democrats to avoid the partial suspension of payments from the federal government.
Both parties called for approval of a new deficit-reduction plan by January 2013, date on which an agreement is not reached, would automatically suspend the tax exemption program and cuts in public spending.
For now, the two main U.S. parties continue to disagree about where and how to cut and raise incomes.
According to the Congressional office, the combination of both policies would reduce the budget deficit of $ 607,000 million, up 4% of GDP in the next two fiscal years.
However, this would create “a weakening economy would reduce tax revenues and increase unemployment.”
The CBO said that if implemented these measures of fiscal adjustment in the U.S. GDP would contract 1.3% in the first half of 2013 and grow 2.3% in the second half, which produce an annual increase of only 0.5% throughout the year.
Technically, it is considered that an economy has entered recession when chaining two quarters of negative growth.
However, the CBO warned that failure to address the causes of the massive budget deficit, the U.S. debt would continue to grow faster than GDP, and recommended a policy mix.
“Changes in taxes and spending that would increase the deficit in 2013 about what would happen to the current plan but reduce the deficit later in the decade,” said the report.
The U.S. economy is undergoing a fragile recovery, with growth of 2.2% of GDP in the first quarter of this year, although the unemployment rate remains high, at 8.1%.
Category: Investing
