Forecast: Fiscal cliff will reduce growth this year by 0.7 percent
Just 18 of the 50 surveyed economists, not all of whom answer every question, said the deal to avert the fiscal cliff by extending tax rates for most Americans and delaying spending cuts was good for the economy. On average, they said growth this year will be 0.7 percentage point lower than it would have been if policies from 2012 had been extended. “Fiscal gridlock is preventing the recovery from gaining steam,” said Julia Coronado of BNP Paribas.
The economists expect the economy to expand at a tepid 2.3% pace in 2013, barely above the 2% rate they estimate for growth last year. That isn’t fast enough to bring down the unemployment rate quickly. On average, the economists still expect a 7.4% unemployment rate at year-end, compared with the current 7.8%. They don’t see unemployment falling below 7% until sometime in 2015.
Though the economists were largely unimpressed with the deal to avert the fiscal cliff, only 15 respondents said the agreement is actively bad for the economy. Indeed the average odds of a recession in the next 12 months tumbled to 19% from 24% last month, the first time they have been below 20% since last June.