REVIEW OF THE ECONOMY 2013
7
SUSTAINING GROWTH, SECURING PROSPERITY
challenge. The American Tax Payer Relief Act
offered only a short-term solution.
The current account balance for the US is
projected to marginally improve from -3.0
percent in 2012 to -2.9 percent in 2013. The
fiscal balance is also estimated to improve from
-8.5 percent in 2012 to -6.5 percent of GDP in
2013.
THE UNITED KINGDOM
GDP growth in the United Kingdom (UK)
is expected to marginally increase from
0.2 percent in 2012 to 0.7 percent in 2013.
However, consumer price inflation is expected
to continue to exceed the target of 2.0 percent
set by the Bank of England, falling slightly from
2.8 percent in 2012 to 2.7 percent in 2013. The
Bank of England has advised that movements
in commodity and import prices, labour costs,
fluctuations in the exchange rate as well as
expectations influenced the rate of inflation.
Unemployment is estimated to fall marginally
from8.0percent in 2012 to 7.8 percent in 2013 as
a result of weak economicgrowth.Thenumber of
persons in work or actively seeking employment
has been steady in the UK since the financial
crisis. The Government has implemented
several measures since the financial crisis to
support labour market participation, including
delayed retirement and changes in several
benefit schemes.
The Bank of England, in July 2012, launched the
Funding for Lending Scheme (FLS) to encourage
lending to households and companies. The
FLS offers cheaper funding to banks and
building societies for an extended period on the
condition that they increase the supply of credit
to households and companies. Credit conditions
facing UK households taking mortgages have
eased somewhat. The incentives to lending
provided by the FLS have had a positive effect
on the mortgage market in the UK. Initially,
incentives under the FLS were to end in 2014,
UNITED STATES
Growth in the United States (US) economy
continues to be slow but positive. Real GDP
growth is expected to decline from 2.2 percent
in 2012 to 1.9 percent in 2013. The gains from
the recovery in housing, consumer spending
and business investment were dampened by
the impact of Hurricane Sandy and a severe
drought which held down farm production. The
lingering effects of the financial crisis impacted
on the financial system, including the restrained
lending by banks to many households and
businesses have stymied economic growth.
Unemployment in theUS is expected to continue
its downward trend, falling from 8.1 percent in
2012 to 7.7 percent in 2013. However, long-term
unemployment remains high and the proportion
of workers who are employed on a part-time
basis as a result of their inability to obtain full-
time employment remains elevated.
Inflation in theUS,asmeasuredby theConsumer
Prices Index (CPI), is expected to fall marginally
from 2.1 percent in 2012 to 1.8 percent in 2013.
The Federal Reserve has attributed this to
considerable slack in labour markets, limited
increases in labour costs, relatively stable prices
for commodities and imports as well as stable
longer-term inflation expectations.
The Chairman of the Federal Reserve on June
19, 2013 stated that if forecasts for economic
recovery are correct, the Federal Reserve could
end its asset purchase scheme next summer,
with the winding-down process due to start
in 2013. He also noted that asset purchases
would continue at their current rate until
unemployment fell to about 7 percent.
However, downside risks still exist, which could
negatively affect economic growth in the US
economy. Firstly, a worsening of the debt crises
in Europe could negatively impact the US trade
and financial channels. In addition, permanent
solutions to looming fiscal issues, such as the
need to raise the debt ceiling and implement
deep automatic budget cuts, still remain a
THE INTERNATIONAL ECONOMY
