Bank economists see 'fiscal cliff' deal slowing economy in 2013

By Peter Schroeder - 01/17/13 12:22 PM ET

Congress's agreement to avoid the "fiscal cliff" is holding back the economy and has the potential to bring the recovery to a screeching halt, according to new analysis.

New projections from the Economic Advisory Committee of the American Bankers Association found that the tax hikes included in the fiscal-cliff compromise are likely to erase 1.25 percent in possible economic growth in 2013. And if Congress does not find a way to promptly address upcoming fiscal battles, Washington could erase any economic growth for the year.

"The committee believes that the combination of tax hikes, a prolonged fight over the debt ceiling and the possibility of severe spending cuts in 2013 have the potential to really stop this economic recovery in its tracks," said Scott Anderson, committee chairman and chief economist for the Bank of the West.

Anderson added that bank economists peg the chances of another recession in 2013 or 2014 as "a little bit higher than normal." They see a 23 percent chance of an economic slide in 2013, and a 20 percent chance in 2014.

The group also expects job growth to continue at a slow and steady pace, with job gains coming in at a bit lower level than experienced in 2012. The unemployment rate is expected to dip in 2013 to just 7.4 percent from the current 7.9 percent level.

Consumers are expected to pinch a few more pennies in the beginning of 2013, as they process smaller paychecks thanks to the expiration of the payroll tax cut.

On the bright side, Anderson noted that the private sector is poised to show some strength, assuming Washington can provide some stability on the policy side.

"Resolving the debt ceiling in a timely manner and providing more clarity on tax and spending policies could actually generate a boost to confidence … open the door for faster growth in the second half of 2013," said Anderson.

A particular bright economic spot is one that has long been an anchor: the housing sector.

"Yes, we think the recovery is real this time," said Anderson "When you look at the supply of housing out there, and household formation rates, we're hitting a real bottom here."

And there is ample room to grow in the housing sector, after it spent several years languishing, he added.