As Election High Wears Off, Economy Sputters to Near Standstill

As 2012 draws to a close, economic growth in the US economy is projected to sputter at just 1.4 percent in the 4th quarter, according to newly released data Tuesday, by the University of Central Florida’s Institute for Economic Competitiveness.

According to the report, while real GDP growth showed a strong finish in 2011, hitting 4.1 percent, the annual growth rate for 2012 is forecast to be a mere 2.1 percent.

Expectations for 2013 are hardly any different as the economy is projected to grow at just 2.0 percent for the full year.

The report attributes much of the weakness in the US economic recovery to economic policy uncertainty, including the looming fiscal cliff, which may be avoided, and the fallout from the ongoing European recession. Other measures which will act as a drag on economic growth in the near term include, spending cuts and revenue hikes and the impacts of the roll out of the Affordable Care Act and Dodd-Frank financial regulatory reform.

Here are some other highlights of the 4Q 2012 U.S. Forecast:

• the Economic Policy Uncertainty Index remains about the high average level of uncertainty that has prevailed in this recovery. Real GDP growth is sputtering under the weight of this uncertainty.

• Europe is in recession. In the end, either the Euro ceases to exist or member countries form a fiscal union and the Euro survives. It is still highly likely that Greece will exit the common currency.

• GDP growth in 2013 should average 2.0% before growth accelerates to 2.8% in 2014 and 3.2% in 2015, before easing back to 2.8% in 2016.

• Real consumer spending is expected to grow an average of 2.5% during 2013-2016. Consumer’s balance sheet woes and slow labor market recovery weigh on spending.

• A housing market recovery is in the making. The housing market will steadily improve through 2016, During 2012-2016, housing starts will more than double from 767,189 in 2012 to 1,710,045 in 2016.

• Unemployment rates are expected to gradually fall to 6.1% in the 4th quarter of 2016. Underemployment (U-6) remains a serious problem and currently stands at 14.6%.