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Budget cuts to restrain US growth in 2013: survey

Feb 25 2013, 11:01 IST
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The tightening of fiscal policy should shrink the federal deficit to $900 billion this year.  (Reuters) The tightening of fiscal policy should shrink the federal deficit to $900 billion this year. (Reuters)
SummaryThe government is staring at a series of big decision points on budget policy.

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

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 gross domestic product.

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 government is staring at a series of big decision points on budget policy. On March 1, $85 billion in automatic spending cuts are set to start kicking in absent congressional action, and late in the month legislation funding the government runs out. Separate legislation, allowing the government to increase its debt to pay bills, expires on May 19.

Nearly 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 $900 billion this year and $761 billion in 2014 from last year's $1.09 trillion.

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

The economists forecast an average unemployment rate this year of 7.7 percent, with a further drop to 7.2 percent in 2014. That would be the lowest level since 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 in 2014.

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.

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