Fiscal Cliff Will Cause Recession, CBO Warns

Massive spending cuts and tax hikes due next year will cause even worse economic damage than previously thought if Washington fails to come up with a solution, Congress' budget referee warned on Wednesday.

The Congressional Budget Office said failure to avoid the so-called "fiscal cliff" of expiring tax cuts and automatic spending reductions would cause the gross domestic product to shrink 0.5 percent in 2013. Previously, the nonpartisan CBO forecast full-year GDP growth of 0.5 percent.

The first half of 2013 will be particularly difficult, the CBO said in its mid-year forecast update. Tax hikes and spending cuts will cause GDP to shrink 2.9 percent in the first half, compared with a prediction in May for a 1.9 percent contraction.

There will still be a slight bounceback in the second half of 2013, but it will be weaker, with growth of only 1.9 percent, compared with a previous forecast of 2.3 percent growth.

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- Posted: 2012-08-22 16:51:18

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