Forget The Ides Of March, February Economic Forecasts Remain Dim
While 2013 marks the beginning of a new term for President Barack Obama, it has to date been defined by the economic problems of his first term. Already this year, gas prices have risen 15 percent and jobless claims rose by 20,000 to a seasonally adjusted 362,000.
Politicians may be predicting economic disaster will result if the March 1 sequester deadline is not avoided, but market analysts appear split over its impact on the broader economy.
Josh Boak and Eric Pianin argue in The Fiscal Times that what matters more than the sequester is “the issue Obama and Republicans have largely stayed quiet about–$200 billion in tax increases slated for this year as part of the fiscal cliff deal approved on New Year’s Day. …. Failure to extend the current budget resolution or defaulting on our debt—both possibilities in the months ahead—would be cause for panic.”
Other economists, including Bank of America’s Ethan Harris, are more concerned. According to The Huffington Post, Harris believes the sequester could slow GDP growth to just 1 percent in the second quarter, which “is not exactly recession territory, but it is dangerously close.”
On the bright side, at least the US is not Europe.
Moody’s Downgrades UK
Moody’s downgraded Britain’s credit rating from a triple-A to AA1 based on mid-term economic forecasts. Reacting to the news, British Prime Minister George Osborne renewed his pledge to focus on reducing the deficit insisting that the downgrade was a further “reminder of the debt problems facing our country – and the clearest possible warning to anyone who thinks we can run away from dealing with those problems.”
Economic Troubles Impact Europe’s Social-Political Fabric
Mohamed el-Arian writes in Fortune says that while the forecasts released at the end of the week were dire in terms of the euro zone’s economy, they also point to fissures in its socio-political fabric.
“Street protests would remain a recurrent theme, especially in the peripheral economies. And traditional political structures would come under greater pressure, without a durable alternative emerging any time soon,” says el-Arian, adding that the longer the malaise, “the greater the challenges facing the European Central Bank in its (so far successful) quest to maintain financial stability – reinforcing the view that the ECB can provide a bridge to a better destination but cannot, on its own, deliver this destination.”
Forecasters Beware: Being Right Can Get You Fired
In 2001, the European Court of Justice ruled that the European Union was within its rights to fire Bernard Connolly for the criticisms the economist made in his 1995 book “The Rotten Heart of Europe.” Almost two decades later, Connolly’s revenge may not be so sweet as many of his predictions then have come to fruition.
In an interview with the Wall Street Journal, Connolly says his predictions of impending economist disaster, which he made when serving as the European Commission’s Monetary Affairs Committee, resulted in him losing his pension and “his photograph was posted at entrances to the commission’s offices, as if he were a wanted criminal.”
Connolly believes that European Central Bank President Mario Draghi is trying to recreate the “bubble” by allowing nations to borrow more cheaply, which he argues is that worst solution. Instead, Connolly maintains, what is needed ia a massive depreciation of the Euro.