CBO: Recession Coming if Fiscal Cliff is Hit
Updating an earlier report from May, the Congressional Budget Office predicts the economy will probably fall into a recession in 2013 if the “fiscal cliff” occurs on schedule at the end of this year, with GDP contracting by 0.5% in 2013 and unemployment rising back to 9%.
On Wednesday, the CBO said it estimates that if the Bush tax cuts expire on schedule, in combination with new required spending cuts under last year’s debt ceiling deal, the deficit will shrink by about $500 billion in fiscal 2013, equal to about 3% of GDP.
The deficit itself would fall from about $1.1 trillion this year to about $640 billion in 2013 because of the higher tax revenues and lower spending.
The CBO said the fiscal cliff would cut projected job growth by more than a million jobs or so next year.
The new outlook is harsher than one released by the CBO in May. In that forecast, the agency projected a milder recession in the first half of the year if the fiscal cliff takes effect.