ALMOST as soon as the re-elected President Barack Obama claimed in his victory speech that the US “economy is recovering”, pundits began warning that he needed to stand up to a hostile Republican House of Representatives on the “fiscal cliff”.
It arrives at the year-end when Bush era tax discounts terminate and planned spending cuts are due to bite, with some estimates that these could punch a $600 billion hole in GDP, risking a slide back into recession.
As a result, US markets welcomed the president with a sharp 2.5 per cent reversal. But perhaps the bigger worry was the faltering of the mighty dollar. While the president’s Republican opponent Mitt Romney set his sights on the dovish Ben Bernanke – the would-be president’s pledge to remove the Federal Reserve chairman being one of the only firm economic promises made during the election – it now looks as if the Fed will continue its path of quantitative easing, thus weakening the currency.
But the fiscal cliff may not be as steep as some have suggested. The next few weeks will see the US government start a serious bout of horse trading.
Obama is expected to start taking a tough line on filibustering in Congress – particularly on tax rises for households earning more than $250,000 a year, which was popular with voters.
This could raise $50bn, although it remains to be seen whether Republicans in the House have been suitably chastened by their loss to soften their stance on this or whether their opposition has become more entrenched in what was often an acrimonious election campaign.
Yet the glimmers of hope remain even after the pundits’ dire warnings returned to extinguish the joy of the election’s resolution. As Mike Turner, head of global strategy and asset allocation at Aberdeen Asset Management reminds us, US corporates have $1,700bn burning a hole in their pockets that could very well be unleashed if the economy continues to grow. But while the US economy may be motoring, there is a sense that Obama won the battle but still has a war to wage – and win.
Once again 2014 is set to be a year of destiny
IF IT feels as if Scotland hasn’t been enjoying the same mild economic fillip that the UK did in the third quarter, you were right. Ian Mackay, chairman of the Institute of Directors in Scotland, last month warned in our sister paper, Scotland on Sunday, that the Olympic lift which helped the UK to 1 per cent growth in GDP in the third quarter had not trickled north of the Border.
Yesterday’s Fraser of Allander Institute report proved him correct as it downgraded growth in the Scottish economy for this year 0.1 per cent into negative territory from a previous estimate for 0.4 per cent sunny growth.
But as the dark nights draw in and we look forward to the fireworks on Hogmanay, 2012 is already starting to feel so last year.
And Fraser of Allander and its partner PWC have made some frisky predictions about performance in the new year and in 2014 – yes, Scotland’s year of destiny.
The Institute reckons that Scottish growth will start to inch past that of the UK’s next year and put even further distance between north and south the next, mainly due to infrastructure projects like the Forth road bridge and the fact that, for some reason, Scotland seems to be doing better at producing more with fewer people. Such parsimony sounds like the very essence of Scottishness.