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Standard & Poor: Risk of U.S. double-dip recession certain

By Catholic Online (NEWS CONSORTIUM)
August 24th, 2012
Catholic Online (www.catholic.org)

Ratings agency Standard & Poor's says that the odds are considerably higher that the United States will slip back into recession in 2013. The agency cited risks from the European debt crisis and budget tightening by this coming January 1.

LOS ANGELES, CA (Catholic Online) - S&P raised the chance of the U.S. falling into recession to as high as 25 percent, which was up from a 20 percent chance estimated last February. The world's largest economy has continued to struggle to recover from a severe recession in 2008-2009.

S&P also pointed to the possibility of the government being forced by existing law to severely cut spending and increase taxes by the first of next year, the so-called "fiscal cliff" that would crunch the economy.

"Economic activity has downshifted sharply from earlier this year," S&P said in a report on North American credit conditions amid global uncertainty this week.

"At the same time, possible contagion from the European debt crisis, the potential so-called 'fiscal cliff', and the risk of a hard landing for China's economy have added greater uncertainty to U.S. economic prospects," it said.

The world's largest economy grew at a 1.5 percent annual rate in the second quarter, a sharp slowdown from late last year as unemployment remained stuck above 8.0 percent.

Underscoring the prediction, S&P discussed the impact of a U.S. recession would have upon the 17-nation eurozone, whose economy contracted 0.2 percent in the second quarter. S&P forecast a 0.6 percent contraction this year.

"A double-dip recession in Europe that transmits financial turmoil to the U.S. could push it into recession," the agency said.

It wasn't all gloom and doom. S&P said its baseline scenario for the U.S. economy still remained "modest growth," projecting a gross domestic product expansion of about 2.1 percent for this year.

The agency also said it expected that politicians would agree before year-end to change the current severe budget cut and tax hike mandates to avoid the fiscal cliff fate.

"We do not believe the U.S. and European economies will improve substantially in the next year," S&P added.

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