The Congressional Budget Office has long predicted a recession if the U.S. went over the fiscal cliff. But that’s not the worst case scenario. There’s also the danger of Europe’s debt crisis forcing one or more countries out of the euro zone. Tensions over Iran’s nuclear ambitions could lead to a fresh war in the Middle East, disrupting global oil supplies.
Nigel Gault is chief U.S. economist at IHS Global Insight.
“It’s a very, very low probability event. But in the worst case, we’d be looking at large drops in activity here. And in that case, we’d be looking at an unemployment rate heading up back to around the 10% mark, around the double digits.”
Gault says what’s more likely is a belated resolution to the fiscal cliff that backloads the pain over several years. He says Europe will remain weak, but won’t explode. Overall, IHS forecasts the U.S. economy will avoid recession this year.