The Private Bank of California : Bank Economists Predict Improvement After Fiscal Cliff Drag

Bank Economists Predict Improvement After Fiscal Cliff Drag

American Bankers Association article republished:

01.24.13

In related news, the private-sector economy appears poised for sustainable growth, the ABA Economic Advisory Committee (EAC) announced in a recent release.  According to the EAC, the U.S. gross domestic product will hover below 2 percent during 2013's first half, but it's expected to increase to 2.6 percent in the fourth quarter.

While the private-sector economy appears poised for substantial growth, the tax hikes made at the start of 2013 will create a drag on GDP growth of at least 1.25 percent, leading to the possibility of severe spending cuts in 2013 and potentially stopping the economy in its tracks.

"If you double-down on austerity this year, you're flirting with recession. Resolving the debt ceiling and providing clarity on taxes and spending will boost confidence, opening the door for faster growth at a critical point in the economic expansion," said EAC Chairman Scott Anderson, chief economist at Bank of the West in San Francisco.

The EAC also forecasted that unemployment will continue a slow, steady decline and fall to 7.4 percent by year's end.  It added that the housing recovery will gain strength, with home prices rising 4.3 percent and residential investment increasing 12.9 percent.

"Rising home prices create a wealth effect that's critical to supporting consumer spending and economic expansion," Anderson said.  But the EAC said consumer spending, which represents 70 percent of the economy, is expected to grow only 1.8 percent in 2013 -- about the same as last year.

To read more ABA Newsbytes visit www.ABA.com.

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