(Bloomberg News) The U.S. risks entering a recession that will hurt economic growth worldwide should policy makers fail to avoid the so-called fiscal cliff of automatic tax increases and spending cuts next year, Fitch Ratings said.
"We think that will tip the U.S. back into recession," Fitch Managing Director Ed Parker said in an interview in Istanbul yesterday. "This should be a wholly avoidable, unnecessary recession."
Fitch on Nov. 7 warned that the U.S. may be downgraded next year unless lawmakers avoid automatic tax boosts and budget cuts and raise the debt ceiling, while Moody's Investors Service said it will wait to see the economic impact should the nation experience a fiscal shock. Standard & Poor's stripped the U.S. of its AAA credit rating on Aug. 5, 2011, after months of political wrangling over the debt ceiling.
The fiscal cliff comprises $600 billion of tax increases and spending cuts scheduled to take effect automatically next year unless Congress acts. Failure to reach a solution would be "a very bad indication of the quality of U.S. policy making, and the political process there," Fitch's Parker said.
"If the U.S. goes into recession, given it has such a big weight in the global economy, then that will knock quite a lot of global growth," he said. "That will affect the growth of pretty much every country in the world."
"I am not saying it will trigger downgrades of other countries but it will reduce global growth and obviously weaker global growth will make other things equally bad for countries' public finances," Parker said.