“As a deadlock continues over automatic spending cuts in the United States, analysts told CNBC that the country is living in a “fantasy world” and will need to implement trillions more in budget cuts.
U.S. markets seemed to have shaken off worries over the $85 billion of automatic spending cuts known as the “sequester” that went into effect over the weekend, with theS&P 500 finishing in positive territory for the first Monday in 2013 and the Dowclose to hitting its record closing high on Monday.
Despite the sanguine reaction of markets, analysts told CNBC that sequestration, which constrains the country to make $1.2 trillion in budget cuts over ten years – with $85 billion in 2013 alone – would have a negative impact on the economy and more would need to be done.
Stephen King, chief global economist at HSBC, said that the U.S. was living in a“fantasy world” over its growth forecasts.
“If you look at the projections from the Congressional Budget Office (CBO) they assume that growth goes back to between 4 to 5 percent in real terms between 2014 and 2018. Their numbers suggest that the U.S. will post the fastest rate of productivity growth of any decade in the last 50 or 60 years,” King told CNBC’s “European Closing Bell.”
“Even allowing for the fact that there’s some [debt] reduction coming through the sequester, there’s still a degree of wishful thinking with regard to the economy which probably isn’t going to come true,” he said…..”
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