Fiscal woes to keep U.S. growth modest in 2013: poll

The U.S. economy will grow modestly this year, dogged by fiscal policy battles in the first half yet supported by an improving housing market, a Reuters poll showed on Wednesday.

Most economists polled over the last week expect the Federal Reserve's ultra-loose monetary policy, including the latest open-ended bond-buying program, to remain in place well into next year despite the general improvement.

U.S. lawmakers managed to avoid automatic sweeping tax hikes and spending cuts at the start of the year - the fiscal cliff - which were hanging over the outlook last month.

But there are more budget battles ahead, including the imminent need to raise the government's borrowing limit, and wrangling over deep spending cuts that are scheduled to take place in March.

So economists in the poll held their forecasts steady, still calling for a 1.5 percent annualized rate of growth in the first quarter, 2 percent in the second, followed by 2.5 percent and 2.7 percent near the end of the year.

This translates as a 2.0 percent increase on growth for 2013 as a whole versus a predicted 2.3 percent last year.

Most agree that major business spending and hiring decisions are on ice until the big budget fights are over. That means that the economy will remain in low gear.

"There's not a lot of incentive to get ahead of these decisions, so business leaders are pretty much keeping things close to the vest," said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.

With the euro zone debt crisis tamed for now but still not solved, economists say that the biggest risks to the world's largest economy are political.

"(They) center on mistakes by policymakers in Washington and Europe," said John Lonski, economist at Moody's Investor Service.

A BETTER SECOND HALF

The second half of the year is expected to be stronger, as the housing market, long the Achilles' heel of the U.S. economy, recovers further.

... contd.

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