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POLITICAL ECONOMY
Outside View: U.S economy in 2013
by Peter Morici
College Park, Md. (UPI) Dec 20, 2012


World Bank ups Chinese growth projection for 2013
Washington (AFP) Dec 19, 2012 - The World Bank on Wednesday upwardly revised its projection for Chinese economic growth in 2013 from 8.1 percent to 8.4 percent, but predicted the rate would taper off in the longer run.

This year, growth in the world's second-largest economy is expected to reach 7.9 percent, slightly better than the previously projected 7.7 percent, the Washington-based body said in its East Asia and Pacific Economic Update.

"Weak exports and the government's efforts to cool down the overheating housing sector slowed down China's economy in 2012, but recovery has set in the final months of the year," the World Bank said.

"In 2013, China's economy is expected to grow at 8.4 percent, fueled by fiscal stimulus and the faster implementation of large investment projects."

Still, despite the revision, 2013's rebound is not expected to take China's growth back to its 2011 level, when it reached 9.3 percent.

"In the longer run, GDP growth is projected to moderate somewhat because of the structural shift of the economy, which is anticipated to move away from investment and export-driven growth," the bank said.

"The anticipated slow recovery of the global economy, ebbing effects of this round of domestic stimulus, and the aging population contribute to this forecast."

Fiscal measures such as targeted tax cuts and social welfare spending "should attract first priority," the bank said, noting that Beijing's near-term policy challenge was balancing the trade-off between supporting growth and reform.

Recent retail sales data indicate U.S. economic growth is shifting down a gear from the 2.7 percent pace set during the third quarter. The consensus of forecasts indicates growth slowing to less than 2 percent in the fourth and first quarters -- my submissions to those polls were 1.7 and 1.4 percent, respectively.

For all of 2013, the U.S. economy will be hard pressed to accomplish the 2 percent growth registered this year and unemployment only will continue falling if more adults opt out of the labor market or settle for part-time work.

This forecast depends on a fiscal cliff agreement that imposes only moderately higher taxes and at least some veiled attempt to curb spending.

On spending cuts, this economist is from Missouri -- Show Me.

U.S. President Barack Obama and allies in Congress simply won't accept that entitlement spending is out of control. Such cognitive dissonance colors long-term prospects, even as revealed by forecasts coming from Democratic economists.

Should the president succeed in obtaining an immediate $100 billion to $150 billion in new taxes, and Republicans obtain a similar-sized quick cut in spending, brace for a recession. With so many folks already unemployed or underemployed, it could be difficult to lift the economy off the mat again, even with trillion-dollar deficits.

It is important to recognize, stronger third quarter growth was on the back of inventory build and surging exports, whereas consumer spending, the big locomotive, slowed markedly. Inventory investments must moderate with the slower pace of consumer spending, and exports have already slowed considerably thanks to policy dysfunctions and recession in Europe.

Consumers are hesitant to do more than replace wearing big-ticket items and indulge in moderate outlays on non-durables like clothing, as worries about the fiscal cliff loom. More importantly, years of falling real wages constrain consumer buying power -- savings share of personal income is already very low.

Jobs lost to Chinese and other Asian competition in manufacturing continue to be replaced by lower paying positions in service activities and in what new manufacturing emerges and the failure to replace many jobs altogether pins down the percentage of adults working and wages.

Further, many states have solved their budget woes by raising taxes and fees. Falling real wages, high unemployment and higher taxes create more tight-fisted customers for Walmart and Kia but fewer enthusiasts for Nordstrom and your local Ford dealer.

Big caution in the auto-patch -- GM is discounting to clear piled-up inventories and the dollar value of retail auto sales isn't matching the surge in vehicles sold.

Overall, the U.S. economy remains vulnerable to another shock -- be it the fiscal cliff, big tax increases and spending cuts to avoid it or some other disaster. The focus on higher taxes in the fiscal cliff negotiations almost guarantees another year of tepid growth or worse.

(Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published financial columnist. His Twitter account is @pmorici1.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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POLITICAL ECONOMY
World Bank ups Chinese growth projection for 2013
Washington (AFP) Dec 19, 2012
The World Bank on Wednesday upwardly revised its projection for Chinese economic growth in 2013 from 8.1 percent to 8.4 percent, but predicted the rate would taper off in the longer run. This year, growth in the world's second-largest economy is expected to reach 7.9 percent, slightly better than the previously projected 7.7 percent, the Washington-based body said in its East Asia and Pacifi ... read more


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