Under those fiscal conditions, which will occur under current law, growth in real (inflation-adjusted) GDP in calendar year 2013 will be just 0.5%, CBO expects -- with the economy projected to contract at an annual rate of 1.3% in the first half of the year and expand at an annual rate of 2.3% in the second half. Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession.
At the same time, the CBO release also projects the GDP growth if the fiscal restraint were not exercised. According to the release:
CBO analyzed what would happen if lawmakers changed fiscal policy in late 2012 to remove or offset all of the policies that are scheduled to reduce the federal budget deficit by 5.1% of GDP between calendar years 2012 and 2013. In that case, CBO estimates, the growth of real GDP in calendar year 2013 would lie in a broad range around 4.4%, well above the 0.5% projected for 2013 under current law.
My Opinion on These Forecasts
I personally don't believe that the U.S. economy will grow at 4.4% if the fiscal restraint were not exercised. Projecting a growth of 4.4% is way too optimistic under the current global economic scenario. At the same time, I agree that a recession could be avoided if the fiscal restraint were not exercised.
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