Home Banking & Finance Credit Suisse predicts fiscal drag will continue to cloud nation’s economic outlook

Credit Suisse predicts fiscal drag will continue to cloud nation’s economic outlook

Economic projections for 2013 have lacked the gloomy outlook of previous years, but are still “far from spectacular.” Such was the assessment from global financial services company Credit Suisse in its 2012 year-end report, “2013 Global Outlook: Where have all the real yields gone?”

Dr. Neal Soss, managing director and chief economist for Credit Suisse, said that the financial crisis of 2008 was unparalleled in our lifetime and people became either scared or prudent. Europe’s recent recession also tempered the optimism of many in the financial world, as did the threat of the fiscal cliff, Soss told business professionals at a Jan. 18 networking breakfast in Tarrytown hosted by the Association for Corporate Growth New York Inc.

According to Soss, the deal to avert the fiscal cliff wasn’t a real fix because “when it’s all said and done, it was a tax increase deal and not very much of anything else.” He added that the lingering cloud over the economy is partly perpetuated by the “fiscal drag,” or the economy’s spending gap that continues to grip the nation and much of the world because of the turbulent political landscape.

However, Soss said, “It’s very difficult to fault the political class. It’s very hard truly to lead from in front.” Relating political pressure to the business world, Soss added, “Leaders in business will probably recognize that. It’s probably easier to lead from the side or even slightly behind.” The shakiness of the recent global economics makes it tough to lead.

Soss identified Mexico as a nation that has impressed the rest of the world as it has emerged with a blueprint for improving its national economy. “Mexico became the poster child for stability and its government is well regarded,” he said. “Being next-door neighbors has had its benefits, because it’s good if your neighbor’s home value increases.” The United States can feed off of the improved economy of its neighbor and 2013 may show more of that, Soss said.

Looking ahead, the Credit Suisse report has varied expectations of the U.S.’s global economic partners and its own fortune. The report suggested that China will have tempered economic growth and experience slowed momentum this year. Across the Atlantic, Europe should rebound slightly with a modest recovery in economic growth, despite what the report describes as “considerable uncertainty” for the region. And in the U.S., despite increased optimism in the housing market and noted upticks in economic growth, the fiscal drag will increase, according to Credit Suisse.

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