The Politics of Global Recovery in 2013

DAVOS – Could 2013 be a better year for the global economy than 2012 was? The answer, in principle, is yes. In practice, however, the answer could be more depressing.

In the United States, the pieces are in place for stronger growth. The housing market is finally recovering. The Fed has signaled that it is prepared to do more to support growth and bring down unemployment. All that other US policymakers have to do to ensure that 2013 is better than 2012 is avoid shooting themselves in the foot.

In particular, to eliminate the uncertainty that continues to depress consumption and capital spending, they need to avoid “fiscal cliffs” (now and in the future), dangerous sequester mechanisms, and the silliness surrounding the periodic approach of the debt ceiling. They also must establish a credible plan for medium-term fiscal consolidation – one that entails both higher tax revenues and expenditure reforms, but only once the economy is strong enough to handle such measures.

Can US policymakers achieve this bare minimum? The consensus forecast for US growth in 2013 is lower than for 2012, which is not a vote of confidence that they can.