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Could 2013 Be A Good Economic Year?

DAVID GREENE, HOST:

Now despite these recent market losses and the unresolved negotiations in Washington, at least one prominent economist believes 2013 could be a year of progress in the U.S. economic recovery.

Our colleague Steve Inskeep spoke to Nariman Behravesh, chief economist of IHS Global Insight, about his forecast.

STEVE INSKEEP, HOST:

Could 2013 be a good economic year?

NARIMAN BEHRAVESH: Indeed, it could be a good economic year in the sense that the U.S. economy, barring a serious fiscal cliff scenario, the U.S. economy is likely to pick up steam as the year progresses, consumer spending is strong and is getting stronger, housing is finally recovering, they together account for over 75 percent of the U.S. economy.

The other side of the world, China looks like it's bottomed out in terms of its slowdown; it's picking up some steam. The rest of Asia looks like it's strengthening and doing fairly well. So between the U.S. and Asia, in particular China, I think we could be looking at a decent 2013, especially the second half.

INSKEEP: You've just named four or five things that have been real drags on the economy and said that all of them - they're not all the problems out there but that all of those major problems are improving all at once.

BEHRAVESH: Indeed. I think what's happening is that things have changed enough, let's say for U.S. consumers in the sense that employment growth is strong enough. It's not great but it's strong enough to make consumers feel little bit better. Gasoline prices, for example, have come down; that's putting money back into consumers' pockets. Housing is finally recovering, a lot of the worst problems are behind us. So four years after, you know, the housing crash, we're starting to see a recovery. So, it's been very slow but nevertheless, we're there in terms of that recovery.

INSKEEP: What is substantively different between the position we're in now with a year ago, two years ago, three years ago?

BEHRAVESH: I think the difference is that the underlying economic dynamics have improved for the U.S. and for Asia in particular, but even parts of Europe. What hasn't changed is the political uncertainty around the U.S. policy situation, to some extent around the European sovereign debt situation. So in terms of economic fundamentals and dynamism, it's better than it was a year ago and probably will get even better. But on the political side, it's probably not a lot better.

INSKEEP: Given that there has been a degree of chaos in Washington for quite a few years, is this something that businesses have not already factored in? Is this a serious drag on the economy?

BEHRAVESH: I think the uncertainty, what we've often referred to as the extreme uncertainty coming out of Washington, is hurting business spending and hiring as well. So they've got the cash to spend; that's the good news. The bad news is they're extremely risk-averse right now.

INSKEEP: You said the European situation seems like less of a drag than it might have been a year ago.

BEHRAVESH: I think the big thing that's changed in Europe is that the European Central Bank has announced its willingness to backstop Italian and Spanish bonds. That has reduced considerably the risk of a financial meltdown in Europe.

INSKEEP: Let me ask about another thing, Mr. Behravesh, you said China is looking better than it has been. Although we have heard from economists in China some notes of concern, because this is an economy that has been sped up and propped up through just massive, massive infrastructure spending. And just on a pure mathematical level, it may be that they would have to continue that infrastructure spending and even increase it year after year after year to avoid a collapse.

BEHRAVESH: There are two issues in terms of Chinese growth. One is the near term, will China have a hard landing? And a hard landing in China is defined as 5 or 6 percent growth. But China needs at least 7 or 8 percent to absorb its surplus labor. We think a China hard landing scenario is not very likely right now. That said, there are huge long-term structural challenges for China, which probably means that China will not be able to go back to 9 percent, or even 10 percent growth. And so, we do think that they've done enough to avoid this hard landing scenario, which everybody has been worried about.

INSKEEP: Do you think the United States has come through these several years of crisis with its basic economic position in the world unchanged?

BEHRAVESH: I think the answer has to be that the U.S. is actually the best of a bad lot. We have problems, there's no question about it, but the problems, let's say in Europe, or even in Japan, are in many senses worse than ours. And one thing that perhaps not enough people have focused on is that we're in the middle of what could be described as an energy boom that's creating jobs, it's lowered natural gas prices considerably. So there's actually some very, very bright spots in the U.S. economy regardless of whatever else is going on in Washington or elsewhere in the world.

INSKEEP: Nariman Behravesh is the author of "Spin Free Economics." Thanks very much.

BEHRAVESH: My pleasure, Steve. Transcript provided by NPR, Copyright NPR.