FXstreet.com (Barcelona) - BofA Merrill Lynch analysts consider the US fiscal cliff as the biggest “known unknown” facing the markets as the financial press stresses not only the magnitude of the potential shock, a 4.6% of GDP fiscal contraction, but also the fractious political backdrop hindering the cliff’s resolution. “Our latest Fund Manager Survey found that the Cliff is now the number one concern of investors”, wrote analyst Gustavo Reis, seeing US businesses pulling back based on both hard data and anecdotal evidence, which suggests that 4Q activity will have a weak tone.
Being an economy with growth driven by domestic demand, Merrill Lynch analysts would expect a major international contagion if the US jumps over the cliff, as “ countries that rely on domestic demand rather than exports tend to have larger spillover effects to the rest of the world”. Since it's a “wholly US-made crisis”, the US fiscal contraction would be a brand new shock into the global economy, but policymakers will likely avoid some of the Cliff. However, even a 2% of GDP fiscal pullback would hurt the rest of the world given the soft state of global growth.
Being an economy with growth driven by domestic demand, Merrill Lynch analysts would expect a major international contagion if the US jumps over the cliff, as “ countries that rely on domestic demand rather than exports tend to have larger spillover effects to the rest of the world”. Since it's a “wholly US-made crisis”, the US fiscal contraction would be a brand new shock into the global economy, but policymakers will likely avoid some of the Cliff. However, even a 2% of GDP fiscal pullback would hurt the rest of the world given the soft state of global growth.
