- Published on Wednesday, 28 November 2012 20:01
- Written by
WASHINGTON—In
a grim new forecast, a leading international economic group sharply cut
its outlook for US and global growth next year and warned that the debt
crisis in Europe and fiscal-policy risks in America could plunge the
world back into recession.
As it stands now, the
industrialized world is looking at a muted and uneven recovery in the
next two years, according to the Organization for Economic Cooperation
and Development (OECD).
The Paris-based OECD
projected gross domestic product (GDP) across its 34
member-nations—which include the US, Japan and the 17-nation euro
zone—to grow a sluggish 1.4 percent next year. That is down from 2.2
percent that the group had forecasted six months earlier.
Growth prospects in
the US also were slashed for next year. Experts at the OECD now see
inflation-adjusted GDP, the broadest measure of economic activity,
rising 2 percent next year in the US, roughly equivalent to this year
and down from its earlier forecast of an increase of 2.6 percent.
The new projections
are all the more sobering in that they are based on assumptions that
Europe’s debt crisis won’t get much worse and that the US won’t go over
the “fiscal cliff”—a combination of more than $500 billion in automatic
tax increases and federal spending cuts slated to begin at the start of
next year.
“If key adverse risks
cannot be averted, and especially if the euro-zone crisis were to
intensify significantly, the likely outcome would be considerably
weaker, potentially plunging the global economy into deep recession and
deflation, with large additional rises in unemployment,” the OECD said.
The report, released on Tuesday, is on the pessimistic side.
Although economists
widely agree on the recession risks in the event that the US isn’t able
to solve the fiscal impasse, a number of experts now say that the US and
global economies could see considerably stronger growth next year if
Washington can reach agreement on tax and spending policies that avoid a
big fiscal contraction in 2013.
“The economy in the US
is really poised to grow,” said Bernard Baumohl, chief global economist
at the Economic Outlook Group, noting that GDP growth in the US could
surge to a solid 3.5 percent or higher next year if the budget issues
are resolved.
The latest forecast
from the Federal Reserve, compiled in mid-September, sees US GDP
increasing 2.5 percent to 3 percent next year.
Baumohl’s reasons for
greater optimism include a recovering housing market, improving job
growth and healthier personal finances, all of which should help drive
stronger consumer spending.
Total consumer debt,
which has fallen for four years, dropped by $74 billion to $11.31
trillion in the third quarter from the previous quarter, and it is now
down $1.37 trillion from the peak in September 2008, according to a
report on Tuesday from the New York Fed.
Reflecting these
trends, the Conference Board said on Tuesday that its latest survey
showed consumer confidence at its highest level since early 2008,
results similar to a survey by the University of Michigan.
American business
sentiments, however, have been more cautious of late, and many companies
have held back on making investments in recent months. But banks are
generally in good shape, and big companies are sitting on mountains of
cash and are expected to ramp up investments once the fiscal and tax
pictures become clearer.
The OECD report nodded
to these factors, but noted that the global recovery slowed markedly in
the past year amid faltering confidence and weakening world trade, in
part because of problems in the euro zone, which contributed to an
unexpectedly strong slowdown in developing countries such as China.
The 17-nation euro zone will probably remain in recession well into next year, the OECD said.
(Los Angeles Times/MCT)
In Photo: IN
this file photo, Jackie Doyle (second from left), of Greenwood Lake,
New York, waits in line to mail her husband’s taxes at the James A.
Farley Main Post Office in New York. The package of tax increases and
spending cuts known as the “fiscal cliff” takes effect on January 1,
2013, unless Congress passes a budget deal by then. The economy would be
hit so hard that it would likely sink into recession in the first half
of 2013, economists say. (AP)
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