U.S. economy forecast to show modest growth - If it can avoid risks

www.conferenceboard.ca

OTTAWA, Jan. 30, 2012 /CNW/ - The U.S. economy is expected to grow by 2.7 per cent in 2012, but even this modest gain depends on whether governments on both sides of the Atlantic Ocean deal with their respective debt challenges, according to The Conference Board of Canada's U.S. Outlook-Winter 2012.

"Although this outlook sees continued growth in the American economy this year, there are serious downside risks, given the poor track record of politicians in Europe and the United States in addressing their unsustainable debts," said Kip Beckman, Principal Economist.

In 2011, real U.S. gross domestic product (GDP) grew by 1.8 per cent, bolstered in part by an anticipated gain of three per cent (annualized) in the fourth quarter. Despite the tepid overall performance, the U.S. economy was resilient enough to avoid falling back into a recession while absorbing numerous high-profile blows. These shocks included higher commodity prices, weak consumer and business confidence, political stalemate in Washington, and effects of the ongoing European debt crisis on global financial markets.

The Winter 2012 outlook assumes that even if Europe enters a recession, its governments will find a way to keep the euro currency from collapsing.

The forecast also includes the assumption that the United States adopts fiscal policies that support continued growth in the economy. Lower payroll taxes and maintenance of unemployment insurance benefits are two measures that would stimulate the economy in the short term. However, Congress and the Obama Administration must reach an agreement on these measures, otherwise the effects of tighter fiscal policy will reduce economic growth this year.

With employment gains of 100,000 in November and 200,000 in December, the U.S. job market showed signs of life late last year. Employment is forecast to grow by 1.2 per cent in 2012, but the unemployment rate is expected to remain around nine per cent through the year.

Brent Dowdall, Media Relations, Tel.: [phone] ext.  448
E-mail: [email protected]