It's been a week since the election and all eyes are on the fiscal cliff.
In light of that, Lombard Street Research carried out its first weekly fiscal "cliffometer" survey among its clients since the election.
Their latest survey showed that over 30 percent of voters now see a fiscal tightening of 2 percent of GDP, up from 20 percent.
25 percent of voters has expected around 4 percent of fiscal tightening in the last survey, and that number is down to nine percent. Meanwhile, the number that expect "an Armageddon-type scenario has dissipated".
This chart shows the change in the distribution of votes before and after the election:
Meanwhile, Lombard's clients also see smaller multiplier effects on the economy of 1 - 1.25, as compared to previous weeks:
Lombard's Melissa Ball writes that their base case scenario is for 2 - 2.5 percent of fiscal tightening in 2013:
"The most likely scenario in our view is that President Obama would allow for all the Bush tax cuts to roll-over in exchange for higher tax revenue by closing various tax loopholes, reforming the tax code so that the rich have less deductions and exemptions and higher taxes on investment income. This would allow both sides to claim victory and fulfil core campaign promises. Hooray!
Yet, the other measures mentioned above still suggest we should expect fiscal tightening of 2-21⁄4% of GDP. So the champagne should be kept on ice still – or maybe returned to the cellar."
And what does this mean for economic growth? Ball writes that this depends on the multiplier effect on sees. In the event of 2.25 percent of fiscal tightening and a multiplier of 1 and a growth rate of 3.5 percent, GDP should rise 1.2 percent in 2013.
The latest client survey assumes a multiplier of 1.25 and in that case the economy should growth only 0.7 percent in 2013. Whichever way you look at it though, Ball says to expect growth below trend.
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