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President Obama faces ‘fiscal cliff’

Re-elected US President Barack Obama will face a tough challenge to push through necessary measures as he faces a divided Congress, with the Republicans retaining their majority in the House of Representatives while the Democrats kept control of the Senate.

The US government must tackle the so-called ‘fiscal cliff’, as more than $600 billion in tax increases and spending cuts are set to kick-in automatically in 2013.

Meanwhile, last week, Fitch Ratings warned that the US credit rating may be reduced next year unless lawmakers avoid the fiscal cliff and raise the debt ceiling in a timely manner.

However, Moody’s Investors Service said it will wait to see the economic impact should the fiscal shock materialise. In August 2011, Standard and Poor’s stripped the US of the coveted AAA credit rating after months of political bickering on the debt ceiling.

Meanwhile, Germany’s composite purchasing managers’ index (PMI) fell to 47.7 in October from 49.2 in September, which, according to financial information services company Markit, “raises the likelihood of an outright GDP contraction during the final quarter of the year”.

Meanwhile, the eurozone PMI figure of 47.7 is consistent with a quarterly fall of 0.5 per cent in GDP, and the pace of decline in France’s private sector in the past two months “has been the sharpest since the post-Lehman slump in early 2009”.

Finally, in the UK, according to Halifax, house prices fell in October for a fourth month. Property values dropped by 0.7 per cent from September to an average £158,426 (€198,137). From the previous year, prices fell 2.8 per cent.

Britain’s property market remains under pressure as consumer confidence is kept in check by uncertainty over the economic outlook and banks remain reluctant to lend in order to trim their lending to strength­en balance sheets.

This article was compiled by Bank of Valletta plc for general information purposes only.

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