Fitch Sees Fiscal Cliff as Largest Risk to Cutting Global Growth

24/7 Wall St.
Updated

Fitch Ratings has a report out this Thursday calling the coming fiscal cliff as the ultimate risk to the global growth scenario. The long and short is that it could cut the global growth scenario by half, as it warns that it could tip the U.S. and possibly the global economy into recession.

Fitch warns that the least damage from the fiscal cliff would be cutting the rate of global growth in half in the year 2013. It is the $600 billion in tax increases and government spending cuts that is put at 4% of gross domestic product. Fitch says that the impact actually may be more like $800 billion, or 5% of GDP, and it cited the Congressional Budget Office outlook.

The warning is simple as it talks about scale and speed of what would equate to fiscal tightening that will tip the U.S. into an unnecessary and avoidable recession.

What Fitch is projecting is that the cuts will be knocked down to about 1.5% of GDP, but it warns that it could knock off two full points off the 2013 forecast of 2.3% in its alternative scenario analysis.

Fitch also said that the gap with the baseline GDP level would be almost 3 percentage points in 2014 and that it would only narrow slowly thereafter. The end game: a global impact with 1.3% global growth in 2013 versus a baseline forecast of 2.6%.

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JON C. OGG


Filed under: 24/7 Wall St. Wire, Analyst Calls, Economy

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