Relief but clouds still linger on the horizon
'Out with the old and in with the new' has a fine New Year's ring to it. Unfortunately, the saying does not apply to the global economy: the uncertainty over US fiscal policy that dominated the last weeks of 2012 is far from going away.
That uncertainty is likely to be reflected in two important indicators this week – the Institute for Supply Management's manufacturing survey tomorrow and the jobs report on Friday.
The ISM index probably rose to 50.2 from 49.5 in November, still well below the second-quarter average of 52.7, while the economy is expected to have added 145,000 jobs after a gain of 146,000 the month before, according to economists polled by Reuters.
The unemployment rate is likely to have ticked up to 7.8pc from 7.7pc. That figure is more important than ever since the Federal Reserve promised to keep monetary policy ultra-loose till it drops to 6.5pc.
Attention was rightly focused on the immediate consequences of a plunge off the so-called "fiscal cliff" – the combination of tax rises and spending cuts amounting eventually to $600 billion that might have been phased in from today in the absence of a deal.
Thankfully such fears will have been eased considerably but there are still worrying signs on the horizon.
Economists are also increasingly concerned by the inability of Democrats and Republicans to compromise and what that impasse says about the chances of putting America's public finances on a stable medium-term footing.
"Recent signals from the economy, especially signs of renewed life in the housing market, suggest that a stronger recovery may finally be taking hold. But these encouraging developments could yet be snuffed out by missteps on the fiscal cliff," according to Nathan Sheets at Citi in New York.
"Similarly, a failure to address the government's longer-term debt-sustainability problems would pose more long-lived risks for the economy – and for the dollar's role as the global reserve currency," he said in a report.
Mr Sheets said it was only a slight overstatement to say that, if entitlement spending was not meaningfully reformed, the federal debt would eventually become unsustainable almost regardless of what else is done.
Likewise, higher tax burdens appear unavoidable to maintain defence spending and anything approaching present levels of discretionary programmes, he added.
Michael Moran, chief economist at Daiwa Capital Markets in New York, said the debate over tax reform seemed to be about redistributing income and subsidising favoured sectors more than about growth.
"Without meaningful tax and entitlement reform, the unsustainable fiscal situation of the federal government will leave a cloud of uncertainty that constrains growth," he told clients.
Not everyone is so gloomy.
"In the final analysis, the US is in a much better position to help lead the global recovery in 2013 as many financial and real economic imbalances have been reduced and there is plenty of pent-up demand in the private economy to fuel growth," said Joe Carson, chief US economist at AllianceBernstein.
In London, Paul Mortimer-Lee with BNP Paribas said global growth was at, or close to, the bottom of the cycle. Julian Callow at Barclays Capital reckoned that 2013 would finally be the year in which tailwinds began to overcome headwinds.
That would be music to the ears of exporters in Asia,.
The European drama is in abeyance for now, although a raft of purchasing managers' surveys for December is likely to indicate that several big countries, if not the whole 17-nation single-currency bloc, probably contracted last quarter.
The first indicator of the year from China, to be released today, is expected to show that the official purchasing managers' index for December rose to 51 from 50.6 in November, according to economists polled by Reuters. This suggests more economic momentum.