Voting is over in the election of the world’s most powerful politician. Barack Obama has won. Now attention will switch to the question of whether the world’s most powerful economy will commit hara-kiri – and also disembowel the global recovery in the process. Unless members of the US Houses of Congress agree on a new budget settlement in the coming weeks, spending cuts and tax rises worth around $600bn – or 4 per cent of America’s GDP – will be automatically enacted in January.
Researchers at the World Bank estimate that such a massive fiscal consolidation would reduce US GDP by 2.2 per cent in 2013, erasing all the growth that the country would otherwise have registered next year and, in all likelihood, plunging America back into recession. And such is the size of the US, which sucks in huge quantities of goods from the rest of the world, that an American recession would eviscerate global growth, too. If the US goes over what has been termed a “fiscal cliff”, we go over too.