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BNP Paribas economist Jeremy Lawson breaks down the fiscal cliff's impact on the economy.
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The fiscal cliff is the biggest near term threat to the global economy.
So says Fitch ratings -- a new report our next guest believes that the fiscal cliff is gonna hurt the US economy through the rest of this year Jeremy Lawson is being.
Thanks for what -- I'm sort of lead and I gave here but Jerry can I just hope that because the consequences of fiscal cliff are so bad.
That they're -- gonna fix it.
-- -- -- -- You don't succeed by the end of the -- the problem is over the next few months there's a lot of uncertainty about exactly what would happen.
Yeah I think you need your business at the mine and even though confidence about what tax write to get a look like next -- how regulatory policies going to look what the excuse.
So is this is sort of in bargaining going to be increasing capital spending knows what we sees things.
Really pulling back on the capital expenditure plans and the economy started to suffer for -- Now I believe that -- the report today they basically argued that the cleft goes over the cliff -- GDP growth -- employing thirteen.
Gets cut in half.
Does that mean basically -- government spending is now going to be responsible for half of our GDP growth.
Well what it means is saying anything about the saws of the fiscal clear if the tightening fiscal policy next year.
Would be worth 4% of GDP if everything was legislated took actually -- Sony.
If you apply even a relatively small multiplier of about a half to that.
That would reduce growth by two percentage points.
Now the economy at the moment is probably -- growing at about one an opportunity -- so that's enough to generate a recession for accelerate signal.
-- don't -- at the moment isn't directly contributing strongly to -- But he cut back on.
On spending aggressively in particularly if you raise taxes most of the fiscal -- his tax increases.
If you do that didn't -- it very shops longing -- makes you wish they could intersection.
You have -- which is the bigger bad impact on the US economy global economy that tax increases or the government spending cuts that I -- government spending cuts are good thing.
We'll know it depends on how it because I'd say in the long term it's necessary before Citi.
US to get spending under control.
In the question is how how quickly do you make that progress what you want to do is Ichi might moderate -- probably progress so good fiscal policy put on a more sustainable footing.
What you don't want is very shot corrections in the single year -- GDP issues taxes.
You get 3% of GDP in talking fiscal policy just from the tax increases this year due to -- Canada.
And that would be very bad for the economy.
Yes now do you think that consumers got a consumer level that this fiscal cliff stuff actually.
Takes away their confidence or do you think consumers are thinking more about their own paycheck and whether they're neighbor next are getting fired.
Nothing -- the money in the.
The -- is probably not playing on consumers as much as it is weighing on businesses.
And we -- to see that in the consumer confidence -- consumer spending is still it's still progressing optically rapidly it is still is still increasing.
Maybe as we get closer to the end of the year -- the looks like actually you might be facing significant increases taxes.
And you could see shot correction -- so we just horrified that that congress can do deal.
I thank you very much Jeremy -- depreciate and we love your accent have been.
