Fitch: Fiscal Stimulus May Have Boosted U.S. GDP 4%; Raises Questions for Economic Outlook
2012 MAY 18 - (VerticalNews.com) -- Stimulative governmental policy actions may have boosted U.S. GDP approximately 4% the last two years, which raises questions about the sustainability of the current economic recovery, according to a Fitch Ratings study conducted with Oxford Economics.
As the report notes, fiscal stimulus contributed to preventing a longer and deeper recession. However, this deficit spending has expanded U.S. indebtedness to unprecedented levels. At the same time, the Federal Reserve's accommodative rate policy has reached its threshold with short rates hovering at close to zero.
Employment remains critical to the sustainability of the recovery. The U.S. corporate sector remains healthy and could boost economic activity through increased investment and hiring. Further, stabilization in the housing market would benefit specific sectors within the economy, as well as promote more overall confidence. U.S. trade competitiveness has been improving and may further bolster exports. However, the job creation needed for a sustained economic recovery will become more difficult as government stimulus winds down.
The uncertain future growth trajectory of the U.S. economy increases risk in general. This uncertainty, in turn, has the potential to affect the creditworthiness of all U.S. sectors, as well as foreign firms dependent on the U.S. as an export market. Consequently, Fitch anticipates limited rating upgrades within those sectors most closely tied to the U.S. economy until it becomes clearer that organic growth in the broader economy is taking hold.
For this study, Fitch collaborated with Oxford Economics to develop counterfactual scenarios for the last four economic downturns. Essentially, a counterfactual is a scenario where alternative economic conditions are compared to those that actually prevailed.
The full report 'Gauging the Benefits, Costs, and Sustainability of U.S. Stimulus' is available at 'www.fitchratings.com'. The report includes several charts that provide historical context of the last recession to previous ones between 1980-present.
Additional information is available at 'www.fitchratings.com'.
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This article was prepared by VerticalNews Economics editors from staff and other reports. Copyright 2012, VerticalNews Economics via VerticalNews.com.