Moody’s Analytics states in its report, U.S. Macro Outlook 2013: Poised for Liftoff, that while current fiscal policy will drag down U.S. growth entering into 2013, economic growth should accelerate by Q3 thanks to a revived private sector. The sunny outlook relies on a comprehensive budget plan avoiding tax hikes and spending cuts (the so-called “fiscal cliff”) scheduled to take effect in January. The plan must also include an agreement to raise the debt ceiling and develop a path to financial sustainability.
The report predicts the most likely course of action Congress will take is to allow the 2011-2012 payroll tax holiday to end, phase out the emergency unemployment insurance program, allow Bush-era tax rates to expire for households earning over $250,000 per year, and raise taxes on high-income households to help pay for healthcare reform. The changes would cause an economic slowdown of 1.25 percent of GDP next year.
“The impediment to growth will be significant – particularly during the first half of next year – but manageable,” Mark Zandi, chief Economist at Moody’s Analytics, said. “With some additional clarity from policymakers on taxes and budgets, businesses, banks and households should all become more aggressive in investing, hiring, lending and spending.”
In particularly good shape are U.S. companies who have lowered their cost structures due to recessional pressures while keeping unit labor costs the same since 2008. The effects have lowered interest rates, increased profit margins, and lessened debts. Banks are also primed for growth having raised hundreds of billions of new capital, raised underwriting standards, and improving overall credit conditions. The debt service burden of U.S. households will also soon be at record lows, though are currently not uniformly improved.