Obama Wins, Fiscal Cliff Moves Closer

US GDP growth in Q-4 at 1%, Fiscal Cliff looms

The US GDP growth in Q-4 is expected to be 1% due to the Fiscal Cliff uncertainty, an expert of Bank of America Merrill Lynch NYSE:BAC said Tuesday.

Ethan Harris, co-head of global economics research of Bank of America Merrill Lynch, said that if the Fiscal Cliff and the EU economic crisis were not taken into account, the prospects of the US economy would be quite optimistic. “We’ve had real healing in the US economy in the last 3 yrs, even though it’s been a very slow recovery”, Mr.Harris said.

But, the short-term risks cannot be ignored. Mr. Harris said that the world economy entered into a very dangerous period when the United States and Europe fell into crisis at the same time.

From his POV, after a very complicated US presidential election, many politicians of the Democratic, and Republican parties will hold more and stronger negative views towards each other, making the gap between the 2 parties even wider.

Mr. Harris said the most realistic scenario is that the 2 parties will deal with the Fiscal Cliff in peace because the 2 parties gave themselves too much to do and too little time. They think they always have time…

The budget deficit is likely to be cut by US$250 to 300-B through a very painful process, which will bring very bad impact to the market confidence in US economy.

“It means that we probably will go through 6 months period of high uncertainty. Uncertainty is the enemy of growth. If corporations do not know what the tax regime is, what the spending policy is, they will not engage,” he said.

Mr. Harris said that the impact of Fiscal Cliff in terms of capital spending decisions and companies’ dramatic pullback on orders has already appeared. If the Cliff goes on for 6 more months which they are already talking about, more damages will be made including a slowdown in the US job market, “this will be a very challenging period for the US economy.”

Mr. Harris believes as do Shayne and I that emerging Asian markets in general are much healthier. These countries are in good shape, having strong reserve balances and improving their macro economic management.

China as the example, China will avoid “hard landing” in the coming months. Asia could slow a little bit in reaction to the US economic crisis.

Paul A. Ebeling, Jnr.Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

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