Budget cuts to weigh on US growth: survey

ECONOMIC FACTORS::Although the fiscal policy is expected to keep the US economy sluggish, experts expect the unemployment rate to decline this year


Tue, Feb 26, 2013 - Page 15

Likely US government budget cuts and the prospect for messy political fights over fiscal policy will weigh on the US economy this year and hold growth to a tepid 2.4 percent, according to a survey of forecasters published yesterday.

The National Association for Business Economics said that more than 95 percent of the 49 economists who participated in its latest quarterly survey believe fiscal policy actions or concerns would slice into the US’ GDP.

More than half the panelists thought the uncertainty surrounding fiscal policy would subtract less than half a percentage point from economic growth, while nearly one-third expect it to cut between a half point to a full point. Only about 13 percent think the impact would be larger, it said.

The US government is staring at a series of big decision points on budget policy.

On Friday, US$85 billion in automatic spending cuts are set to start kicking in the absence of congressional action, and late next month legislation funding the government runs out. Separate legislation, allowing the government to increase its debt to pay bills, expires on May 19.

About 60 percent of the economists polled expect the automatic budget cuts to take hold as scheduled, either fully or partially, while more than a quarter expect them to be delayed.

Only about 13 percent of panelists thought they would be abandoned altogether.

The tightening of fiscal policy should shrink the federal deficit to US$900 billion this year and US$761 billion next year from last year’s US$1.09 trillion.

While the fiscal tightening is expected to keep the economy sluggish, the jobless rate, which stood at 7.9 percent last month, should slowly drop.

The economists forecast an average unemployment rate this year of 7.7 percent, with a further drop to 7.2 percent next year. That would be the lowest level since US President Barack Obama took office in 2009.

While growth in consumer spending is seen unchanged from last year’s 1.9 percent rate, the economists expect it to accelerate to 2.4 percent next year.

The outlook for the housing market was also positive, with expected improvements in housing starts and home prices. Residential investment is expected to grow 14.8 percent.