The U.S. GDP growth in the fourth quarter is expected to be 1 percent due to the fiscal cliff problem, an expert of Bank of America Merrill Lynch said on Tuesday.
Ethan Harris, co-head of global economics research of Bank of America Merrill Lynch, said that if fiscal cliff and European economic crisis were not taken into account, the prospects of the U.S. economy would be quite optimistic.
"We've had real healing in the U.S. economy in the last three years, even though it's been a very slow recovery", Harris said.
However, the short-term risks cannot be ignored. Harris said that the world economy entered into a very dangerous period when the United States and Europe fell into crisis at the same time.
In his view, after a complicated U.S. presidential election, many politicians of the Democratic Party and Republican Party will hold more negative views towards each other, which will make the gap between the two parties even wider.
Harris said the most realistic scenario is that the two parties will deal with the fiscal cliff in peace because the two parties gave themselves too much to do and too little time. The budget deficit is likely to be cut by 250 to 300 billion U.S. dollars through a very painful process, which will bring very bad impact to the market confidence in U.S. economy.
"It means that we probably will go through six months period of high uncertainty. Uncertainty is the enemy of growth. If corporations do not know what the tax regime is, what the spending policy is, they will not get engaged," he said.
Harris said that the impact of fiscal cliff in terms of capital spending decisions and companies' dramatic pullback on orders has already appeared. If the cliff goes on for six months, more damages will be made including a slowdown in the U.S. job market, "this will be a very challenging period of time."
Harris believed that emerging markets in general are healthier. These countries are in good shape, having strong reserve balances and improving their macro economic management. Take China for example, China will avoid hard landing in the coming months. But Asia will slow a little bit in reaction to the U.S. economic crisis.