COLORADO SPRINGS, Colo. While the United States remains one of the strongest economies globally, lackluster growth and a large fiscal deficit may cause serious downward pressure in the near term, according to one economist.
The U.S. market has been relatively stable compared with other major economies, according to Martin Feldstein, George F. Baker professor of economics at Harvard University. But even the United States may be at risk if certain policy measures are not implemented.
"I believe the U.S. economy is in better shape than the economies in the eurozone and Asia," Feldstein said during the American Iron and Steel Institutes 121st general meetingcohosted by the Metals Service Center Institutein Colorado Springs May 16. "But despite its long-term benefits, there are some major problems affecting our economic climate."
Feldstein, who also is president emeritus of the National Bureau of Economic Research, said that the United States is facing a "cyclically weak economy" and "large fiscal imbalances in both the short run and the long run."
In particular, the United States faces the issue of an enduringly tepid economy. While the recession ended in summer 2009nearly four years agoreal per-capita gross domestic product (GDP) in the United States is lower now than it was before the downturn, he said. Total GDP rose 2.5 percent in 2010, 2 percent in 2011 and less than 2 percent in 2012a trend that does not point to a robust economy. "Well be lucky if we get to 2-percent growth this year. I think theres a risk itll be less than 1 percent," he added.
In addition to a lackluster economy, Washington also faces the problems of a fiscal deficit and political gridlock, along with cuts due to the sequester and increases in payroll and personal taxes.
Looking internationally, little seems to be brighter than the U.S. market, Feldstein said.
Europe, which sees unemployment rates higher than 25 percent in some areas, continues to face massive debt-to-GDP ratios, with increasing unemployment rates in debt-ridden nations and little fiscal certainty in sight.
Growth also has slowed in China, although the outlook there is better due to new leadership and increased urbanization. However, China faces pressure from non-bank institutions, including risky "shadow banks" with large loans, Feldstein said.
But it may not all look negative. Given the right fiscal approach, the U.S. economy has advantages, particularly in a strong labor force and access to affordable natural gas. But the economy likely will remain anemic in the short run, he said. "Despite what I see as very good long-term prospects for the United States, I think the economy this year will be quite weak."