The winner of the US presidential election must act decisively to avert the so-called fiscal cliff of spending cuts and tax rises or risk tipping the global economy back into recession, the world’s biggest economies have warned.
Finance ministers from the G20 countries, including George Osborne, the British Chancellor, used a summit in Mexico City yesterday to increase international pressure as Americans head to the polls.
The failure of either President Barack Obama or his Republican challenger Mitt Romney to avoid the fiscal cliff - the shorthand for $US607 billion ($580 billion) worth of tax rises and spending cuts due in January - threatens major disruption to an already fragile global recovery.
‘‘If the United States fails to resolve the fiscal cliff it would hit the US economy hard as well as the world,’’ Masaaki Shirakawa, the governor of Japan’s central bank, said at the summit. ‘‘Each G20 country will urge the United States to deal with it firmly.’’
The call from the rest of the world’s advanced economies underlines the immediate pressure the winner will be under to resolve the crisis.
The Congressional Budget Office, a leading independent forecaster in Washington, has predicted that if all the tax increases and reductions in government spending are allowed to happen in early January, the world’s largest economy will be back in recession within months.
The tax increases currently due are largely happening because cuts in the rate Americans pay on personal income, capital gains and dividends - first introduced by George W Bush and then extended by Mr Obama - all expire at the end of the year.
The $US110 billion in government spending cuts are the first installment in a planned $US1.2 trillion squeeze over the next decade, with half coming from the US defence budget. America’s ability to avoid the worst of the fiscal cliff will depend not only on who wins the presidential race, but on the balance of power between Republicans and Democrats in Congress after today’s vote.
‘‘The election may produce an even more polarised Congress with fewer moderates and few members looking for the middle ground where compromise might be reached,’’ said Kevin Logan, an economist at HSBC.
The Telegraph, London