Concern over ‘fiscal cliff’ after Obama victory
FOLLOWING the re-election of President Obama to serve a second term in office, concerns have been raised over the ‘fiscal cliff’ of tax rises and spending cuts the US faces – and the impact this will have on this region.
Manchester-based corporate lawyer Barney Leaf of law firm Laytons warned of dire consequences for the global economy if the US does not get its financial house in order.
He said: “Bad news in the US economy can have a direct impact in Manchester or indeed elsewhere in Europe. The fear is that if the Americans fail to reach an agreement in the Senate in January it will spark a re-run of the sort of meltdown in confidence and activity that we saw during the worst months of the banking crisis.
“The global economy is so interconnected with the US that if the US economy goes over a fiscal cliff it causes damage here. Confidence is a big issue. We’ve already seen that with the euro zone crisis, which has had the net effect of making deals harder to do simply because people are so much more tentative to proceed with a deal and more risk-averse in an already conservative climate .”
Carl Cross, investment director at Investec in Liverpool, is also worried about the impact of the fiscal cliff, which he believes could see a fiscal contraction of around 5% of GDP in the US.
“Without some resolution and an extension of the debt ceiling, the Federal government would effectively shut down and the economy risks being plunged back into recession.
“The brinkmanship of last year was hardly helpful to markets and although some compromise between Republicans and Democrats is the most likely outcome, thus avoiding the doomsday scenario, the way this is managed and handled will be the key to market sentiment in the coming months.”
James Hadfield, a US specialist at Grant Thornton, who moved from New York last year, added: “Uncertainty is a killer for business confidence and there will be no election honeymoon for Obama – the US economy faces a critical few months.”
