Meanwhile, cliff's recession "will have a huge negative impact on the whole world," IMF says
The prospect of a "fiscal cliff," a series of tax hikes and spending cuts that take effect early next year, could shave as much as $807 billion, or 5 percent, off U.S. economic growth, yet financial markets do not appear to be bracing for such a big risk event, fund manager BlackRock said in a report on Friday.
The inability of the Republicans and Democrats in the U.S. Congress to agree to a deal by the end of the year could have an enormous impact on the economy, experts say.
According to BlackRock, the world's biggest fund manager, investors are not priced for the possibility of a "fiscal cliff," with most investors it speaks to believing "an 11th hour rescue" and monetary easing policies already in place will enable the U.S. to avoid a recession.
"The S&P 500 index is close to record highs and volatility is eerily low. Our conclusion: Markets have not priced in the 'fiscal cliff' and assume QE3 will drown out other factors," it said, referring to a third round of quantitative easing by the Federal Reserve announced last month.
In related news: The U.S. needs to provide more clarity to ease fears about the "fiscal cliff'" of tax hikes and spending cuts that are due to kick in in January, Zhu Min, deputy managing director of the International Monetary Fund (IMF) said on Friday.
The U.S. Congressional Budget Office and the IMF have said that if the fiscal tightening that is due to take place early next year goes ahead without action from Congress, the U.S. economy will probably fall into recession.
In short, the "fiscal cliff" is a "major concern" for the whole world," Zhu said, urging Washington to take action to soothe worries.
"It's very clear that if the whole tax package moves off the table it will immediately bring the U.S. into a recession, which will have a huge negative impact on the whole world," Zhu told CNBC on the sidelines of the IMF's semi-annual meetings in Tokyo.
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