US Budget Discord Threat To Global Economy

Global investors say the state of the U.S. government’s finances is the greatest risk to the world economy and almost half are curbing their investments in response to continuing budget battles, a Bloomberg poll shows.

With the government within weeks of reaching its borrowing limit, 36 percent of respondents cite the nation’s fiscal woes as the biggest threat compared with 29 percent who choose Europe’s sovereign debt crisis and 15 percent who name a slowing Chinese economy, according to the quarterly poll on Jan. 17 of investors, analysts and traders who subscribe to Bloomberg.

“Without a so-called ‘grand bargain’ between Democrats and Republicans, the U.S. fiscal situation sets up a series of potential crises,” says Howard Wang, a portfolio manager at JF Asset Management Ltd. in Hong Kong. “Bad politics could offset a good economy.”
The International Monetary Fund in October cut its forecast for global economic growth this year to 3.6 percent, 0.3 percentage point lower than its July 2012 estimate.

Investors may get a temporary respite today with U.S. House Republicans scheduled to vote to suspend the nation’s borrowing limit until May 19. The Republican proposal is intended to prompt the Democratic-controlled Senate to approve an annual budget, something it hasn’t done in four years, by withholding lawmakers’ pay if a budget isn’t passed by April 15. The Obama administration yesterday welcomed the House’s move.

Along with the looming debt ceiling, Congress confronts March deadlines on a measure to fund the government and $1.2 trillion in scheduled automatic spending cuts.

Bloomberg

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