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March 2013 Economic Overview

sequestration

Four years after the nadir of the Great Depression, disposable income, consumer spending, and corporate investment are all expanding at a decent clip. Employers are hiring more workers, and, perhaps most importantly, the housing market, which has been the biggest drag on the recovery, is finally turning around if it weren’t for what is happening in Washington, the United States would be poised for several years of healthy growth and falling unemployment.

With the value of people’s investments in stocks and real estate both rising, all of this means that the underlying outlook for consumer spending, which makes up more than two-thirds of GDP, is pretty good.

Barring something unexpected, the Sequester is here bringing with it big cuts in defense and non-defense spending. In total about 0.5% in GDP could be lost to it.

The economy has quite a bit more momentum than many people realize. Largely thanks to the efforts of the Fed, financial conditions aren’t just conducive to growth, they are potentially incendiary.

Eurozone

The Eurozone economy will shrink for another year. The ECB estimates a 0.3% contraction in 2013 versus 0.5% in 2013.

Eurostat said the euro zone’s economic output shrank by 0.6 percent in the final quarter of 2012 from the previous three-month period. The decline was bigger than the 0.4 percent drop expected in markets and the steepest fall since 2009, when the global economy was in its deepest recession since World War II.

There are hopes, though, that the fourth quarter of 2012 will mark the low point for the eurozone, and Germany in particular. Many economists are predicting that the eurozone recession may end in the first half of the year.

Nevertheless, quarterly figures highlight the scale of the problems that have afflicted the single currency zone over the past year. Fears of a break-up, if not a collapse, of the currency dented confidence at a time when many governments were embarked on fairly severe debt-reduction programs.

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