1. QNB Economics
economics@qnb.com.qa
16 March 2013
US Sequester has limited impact on GDP growth in 2013
The US sequester was the last unfinished considerably smaller than the tax increases, the
instalment of the so called ‘fiscal cliff’, wherein spending cuts are only expected to slow GDP
automatic government spending cuts are put in growth by about 0.6% in 2013 to 1.4% from the
place along with tax increases. The sequester earlier baseline forecast of 2.0%, based on
involves an estimated US$1.2trn in spending cuts consensus expectations.
over the next ten years (starting at US$85bn per
year and rising over time), if completely Immediate concerns about the sequestration
implemented. In total, the fiscal cliff involved were put to rest with the release of recent positive
US$600bn of tax increases and spending cuts US GDP and jobs data. Real GDP growth for the
per year, which were due to be enacted on fourth quarter of 2012 was revised upwards from
January 1st 2013. However, the US Congress the initial estimates of -0.1% to 0.1%. The US
reached a last minute agreement over reducing economy also nearly doubled its job creation in
the tax increases, but the sequester was pushed February 2013 to 236,000 jobs, from 119,000
back to March 1st. Congress has failed to reach created in January 2013. This in turn brought
any agreement on downsizing the sequester and down the unemployment rate to 7.7% from 7.9%.
the automatic cuts are, therefore, now in place. However, it is feared that the momentum of
growth could be cut in its track by the
US Real GDP (2007-14) sequestration.
(% change)
The US$85bn in budget cuts for 2013 includes
Re a l GDP US$43bn in discretionary defense spending,
Ba se lin e US$27bn in discretionary non-defense spending
Se questra tion and US$15bn in mandatory non-defense
spending. According to the Congressional Budget
Office (CBO), budgetary resources for defense
2.2 will be cut by around 8% across the board and by
around 5-6% for non-defense. While the impact of
the spending cuts on economic growth seems to
be limited in the short-term, the growing concern
in the medium term relates to job creation. It is
estimated that 750,000 jobs could be lost if the
2007 2008 2009 2010 2011 2012 2013f 2014f budget cuts stay in place. This, in turn would
have further negative implications for long-term
growth.
Looking ahead, the heightened concern for both
the world’s largest economy and the global
economy is the increasing levels of uncertainty
caused by the inability of the US Congress to
reach a consensus. After three years of budget
disagreements between the Democrats and the
Republicans, their differences are becoming
Source: Bureau of Economic Analysis (BEA), CBO and QNB increasingly firmly entrenched. The next
Group analysis
showdown will come when the debt ceiling needs
to be raised again. The debt ceiling has been
temporarily lifted on the basis that it will be
There was greater pressure on Congress to do
reinstated on May 19th at around US$450bn
something about the tax increases as, if fully
above the outstanding debt level at that time. It is
implemented, these were expected to cut US
expected to take around three months for actual
GDP output by 4% in 2013 and push the
debt to rise to a level that will require a further
economy into recession. However, as they are
1

2. QNB Economics
economics@qnb.com.qa
16 March 2013
increase in the debt ceiling. Prior to being
suspended, the debt ceiling was US$16.4trn.
With an already weak global economic recovery,
and the impact of the tax increases and spending
cuts, coupled with political wrangling over the
debt ceiling, this is likely to present even more
downside risks for the global economy in 2013,
according to QNB Group.
** Ends **
2

3. QNB Economics
economics@qnb.com.qa
16 March 2013
increase in the debt ceiling. Prior to being
suspended, the debt ceiling was US$16.4trn.
With an already weak global economic recovery,
and the impact of the tax increases and spending
cuts, coupled with political wrangling over the
debt ceiling, this is likely to present even more
downside risks for the global economy in 2013,
according to QNB Group.
** Ends **
2

4. QNB Economics
economics@qnb.com.qa
16 March 2013
increase in the debt ceiling. Prior to being
suspended, the debt ceiling was US$16.4trn.
With an already weak global economic recovery,
and the impact of the tax increases and spending
cuts, coupled with political wrangling over the
debt ceiling, this is likely to present even more
downside risks for the global economy in 2013,
according to QNB Group.
** Ends **
2

5. QNB Economics
economics@qnb.com.qa
16 March 2013
increase in the debt ceiling. Prior to being
suspended, the debt ceiling was US$16.4trn.
With an already weak global economic recovery,
and the impact of the tax increases and spending
cuts, coupled with political wrangling over the
debt ceiling, this is likely to present even more
downside risks for the global economy in 2013,
according to QNB Group.
** Ends **
2