U.S. Fiscal Cliff Could Cut World Growth in Half
Business + Economy

U.S. Fiscal Cliff Could Cut World Growth in Half

Twentieth Century Fox/The Fiscal Times

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.

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"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.

(Reporting by Herbert Lash in New York)