The factor which draws a line under a recession is that economies move into a period of strong growth – its strong since the records against which it is measured have all trended to low values, apart from anything else (this is illustrated by some very high productivity figures, in percentage terms, from the Japanese automotive industry coming off the post-tsunami lows of spring 2011, for instance). The recession caused by the global financial crisis is atypical in that the recovery phase has been muted, partially because the underlying reason for recession, loss of confidence within the financial sector, has yet to be fully addressed.
The International Monetary Fund (IMF) has described the US economic recovery as “tepid” and reduced its forecast for growth from 2.1% down to 2%. However, it recognised the fortunes of Europe as a key risk to US economy. The IMF identified managing the pace of deficit reduction plans without hurting the US economy as “challenging”.
“The United States remains vulnerable to contagion from an intensification of the euro area debt crisis, which would be transmitted mainly via a generalized increase in risk aversion and lower asset prices, as well as from trade channels” said IMF Managing Director Christine Lagarde, speaking at a press conference in Washington, D.C.
Political factors also pose a risk to the economy in this, a presidential election year. Notably, the US faces a “fiscal cliff” with $4 trillion of tax increases and government spending cuts set to happen automatically by the end of the year and the problem that the debt ceiling of $16.4 trillion set to be broken later in the year. The IMF urged that a new ceiling be agreed quickly to avoid loss of confidence. Failure to achieve an agreement could mean the US defaulting on some of its obligations as almost happened a year ago.