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2013 Forecasts indicate Strong US Economy – Only If Fiscal Cliff avoided

Forecasts for 2013 that are now landing thick and fast show Federal Reserve Chairman Ben Bernanke is not alone in believing it could be a very good year for America if politicians can avoid tumbling off the so-called fiscal cliff.

Updated gross domestic product figures due on Thursday are likely to show the U.S. economy was already doing quite a bit better than first thought last quarter.

According to 60 economists polled by Reuters, the initial estimate of 2.0 percent growth at an annualized rate is likely to be revised up to 2.8 percent.

That pace will flag. Even assuming a political compromise to dodge the fiscal cliff’s full $600 billion in government spending cuts and expiring tax breaks, the budget stance is likely to tighten markedly in early 2013, crimping growth.

Luca Paolini, chief strategist at Pictet Asset Management in London, is pencilling in U.S. growth of around 1 percent in the first quarter. After that, though, thing should improve.

“The second quarter should be slightly better and, in the second part of the year, we’ll probably be above trend at around 3 percent or even higher,” he said.

Contrast that with Japan, which Paolini said was doing “very badly”, and the euro zone, which contracted in the second and third quarters. With Greece and other southern members choking on debt, the single-currency area can expect a return to no more than minimum growth in the first half of 2013.

Overall, the picture was murky. “Only emerging markets, especially China, seem to be getting out of this pretty nicely,” Paolini said. “But it’s not enough. It’s still a weak environment.”

Similarly, Morgan Stanley expects the global economy to remain stuck in a twilight zone in 2013.

But growth in the United States should begin to expand at a slightly above-pace trend from mid-year as policy uncertainty lifts, the bank said in a report.

This was Bernanke’s message in a speech last Tuesday.

“I do think there is important potential for the economy to strengthen significantly if there is a greater level of security and comfort about where we are going as a country,” the central bank chief said.

Tuesday’s survey of U.S. consumer confidence in November will provide an indication whether fiscal cliff jitters are dampening spirits, which have improved in recent months on the back of better job data.

The reviving housing market has also been brightening the mood. The Case-Shiller home price index on Tuesday will show whether price gains are still spreading across the country. If they are, that can bode only well for the economy.

Vincent Reinhart and David Greenlaw at Morgan Stanley said residential construction was likely to be the economy’s standout sector. “We look for sustained improvement in starts, sales and prices over the next few years,” they wrote.

James Malcolm, a currency strategist with Deutsche Bank in London, said a multi-year upturn in U.S. housing should have strong multiplier effects on jobs, tax receipts, personal wealth and confidence – all bullish for the dollar.

The United States, as well as China, also looks attractive to Singapore-based Richard Martin, managing director of IMA Asia, an economic and business research consultancy.

Global risks should be receding by the second quarter. By then, America ought to have resolved its immediate fiscal crunch and China’s new Communist party leaders will have taken over the top government posts in March, Martin said.

This should accelerate corporate investment decisions and turn 2013 into a better year than many expect: “By the third quarter there should be plenty of evidence of firm upturns in China and the U.S., which should clear some of the global oversupply.”

Via – CNBC [1]

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