WASHINGTON — The Congressional Budget Office said Wednesday that the economic recovery would continue “at a modest pace” for the rest of the year but that if Congress took no action to stave off tax increases and automatic budget cuts scheduled for Jan. 1, the economy could fall into a recession.
The nonpartisan analysis predicted that total economic output would shrink and the jobless rate would rise to about 9 percent in the second half of 2013. That analysis echoes those of many other private and government forecasts.
For the remainder of 2012, the office said, the unemployment rate would remain above 8 percent and the federal budget deficit would total $1.1 trillion.
In its semiannual report, the budget office said the economy was somewhat weaker than it had projected in January. Fears about tax increases and spending cuts — the fiscal tightening — are depressing economic growth, it said.
“Economic output would be greater and unemployment lower in the next few years if some or all of the fiscal tightening scheduled under current law was removed,” the report said.
Federal Reserve Chairman Ben S. Bernanke — who coined the term “fiscal cliff” — has warned policymakers about its dire potential consequences for months, urging them to soften the blow to the economy by delaying some of the looming tax increases or spending cuts.
“The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery,” he told the Senate Banking Committee this summer. “Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence.”
The Fed has noted that the recovery has slowed this year, but it has declined to take new measures to boost demand.
In the current fiscal year, which ends Sept. 30, the budget office estimates that federal spending will total $3.56 trillion, while the government will collect $2.44 trillion in revenue. The projected deficit is equivalent to 7.3 percent of the economy.
The report said the budget office sees the economy shrinking at an annual rate of 2.9 percent in the first half of next year and growing at an annual rate of 1.9 percent in the second half.
In January, the budget office predicted the economy would grow by one-half of 1 percent in 2013. Now it predicts the economy will contract by one-half of 1 percent, partly as a result of the “sudden and sizable fiscal tightening” scheduled to occur under current law.
The budget office said that 2012 would be “the fourth year in a row with a deficit more than $1 trillion.”
If Congress cannot break the impasse on tax and fiscal policy and if current law remains in place, the budget office said, the federal deficit will plunge to $641 billion in the fiscal year 2013 and to $387 billion in 2014.