All-out U.S. ‘fiscal cliff’ could cut world growth in half-Fitch

by on September 27, 2012 1:07 pm BST

Sept 27 |
Thu Sep 27, 2012 9:07am EDT

(Reuters) – The unprecedented belt-tightening known
as the “fiscal cliff” that looms over the United States could at
the very least cut world growth in half in 2013, Fitch Ratings
said on Thursday.

The fiscal cliff – a double whammy of tax increases and
spending cuts totaling about $600 billion – could tip the United
States and possibly the world into recession, Fitch said.

“The U.S. fiscal cliff represents the single biggest
near-term threat to a global economic recovery,” the ratings
agency said a research note released in London.

Most of the measures scheduled to take effect at the start
of 2013 would reduce U.S. growth by $800 billion, or 5 percent,
on an annualized basis, Fitch said, citing the U.S.
Congressional Budget Office.

Fitch said a full-scale fiscal tightening was not the most
likely scenario. The scale and speed of this action would
probably push the U.S. economy into an avoidable recession,
slicing about two percentage points off the firm’s growth
forecast of 2.3 percent next year.

“We therefore think the cuts will be pared back to a more
manageable 1.5 percent of GDP,” Fitch said.