U.S. averts debt crisis, but some Canadian analysts still concerned

CIBC ran a report soon after the U.S. President Barack Obama signed the measure saying that it overlooked economic growth. While noting Obama had previously passed new tax cuts this year to boost the economy and employment rate, the latest measure will handcuff fiscal policy, according to CIBC.

“Now, after six months of very weak growth which left the jobless rate at 9.2%, Washington has decided that deficits are the greater worry,” said the report. “Growth will be sacrificed on the altar of fiscal prudence.”

The concern is that Washington is not likely to extend stimulus spending in 2012 after raising the debt ceiling – a move that could weaken an already faltering economy.

“Barring an upside surprise in Friday’s employment report, we will be trimming our already below-consensus growth forecast for the U.S. and global growth through 2012,” said the report. “Indeed, we are starting to get desperate in looking for signs that things won’t be much worse.”

As tension built last week over fears that the debt ceiling might not be raised, the loonie rose to its highest level above the U.S. dollar in three years.

As a result of the deficit cutting, TD Economics this week predicted U.S. economic growth will stay around 2.5% to 3%. The report cautioned that if the U.S. economy stumbles again, Canada will feel the effects.

“If this fiscal crisis starts to spiral, Canada will be likely to be taken along on the ride,” said the TD Economics report.

For his part, Canadian Finance Minister Jim Flaherty said he was pleased a crisis was averted, but added it’s not yet a solution for the longer-term.

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