CBO predicts recession for US next year

A jobless man plays guitar and sings for tips on a sidewalk in Washington, DC, as the US unemployment rate has risen to 8.3 percent. (File photo)

A new study shows that current plans aimed at reducing the budget deficit in the United States will cause recession and increase unemployment.

The study conducted by the Congressional Budget Office (CBO) said on Wednesday that the political deal on the budget deficit last year will cause the economy to shrink by 0.5 percent in 2013.

The CBO added that the jobless rate will also reach 9.1 percent by the second half of 2013 from the current 8.3 percent.

The “fiscal cliff” plan is set to slash some $500 billion from the budget deficit, forecast at $1.1 trillion for this fiscal year.

The CBO noted that more encouraging growth scenarios would unfold, should adjustments be made to the existing law.

But since the August 2011 deal — a poison-pill agreement never meant to remain in place but to force a more palatable deal between battling Democrats and Republicans — politicians have not been able to agree on how to replace it.

US Democrat President Barack Obama and Republicans agree that the budget cuts are too draconian, but Republicans have insisted on sustained and expanded tax cuts in any deal to fix the 2011 law.

With the issues of debt and taxes at front and center in the presidential election campaign, neither side is likely to give in on a compromise before the November vote.

But that will give Congress only a few weeks to reverse from the fiscal-cliff course before it is to come into effect beginning January 1 — a fact that has businesses, investors and politicians increasingly worried.

SOURCE