The fiscal drag on US GDP growth. | Eurobank
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The fiscal drag on US GDP growth.

• Congress and the Administration have compromised on extending the 2% payroll tax cuts and emergency unemployment benefits, averting a noticeable fiscal drag on growth in the first part of the year.
• While the current political environment generates some uncertainty concerning further extension, there is a high likelihood that both provisions will be extended through the end of 2012.
• Under this assumption, CBO’s forecast for the US federal budget deficit in 2012 changes from -6.2% to -7.3% of GDP.
• According to our estimates, the average fiscal effect on 2012 US growth would be 0.6-0.7%, marginally higher than the average fiscal drag on 2011 US growth (-0.5%).