The U.S. economy will grow this year but a soft pace and if it can overcome risks from a potential European implosion as well as hefty fiscal alterations due to hit at the end of year, according to the Economic Advisory Committee of the American Bankers Association.

The economy should grow 2.2 percent in 2012 compared with 1.6 percent in 2011, the committee finds.

The European debt crisis could flare up, while in the U.S., tax cuts are set to expire at the end of the year at the same time automatic spending cuts are set to kick in, a combination often referred to as "a fiscal cliff" that could derail recovery if not addressed today.

Don't expect a surge in employment either.

"Although economic growth will pick up, downside risks have become more pronounced," George Mokrzan, committee chairman and Huntington Bank chief economist, says in a statement.

"Our consensus forecast is that the economy isn't growing rapidly enough to push the unemployment rate below 8 percent by year-end."

Unemployment rates currently stand at 8.2 percent.

Driving growth will include consumer spending, which represents 70 percent of total U.S. economic output, which will grow 2.4 percent this year, as well as strong auto sales and mild recovery in the housing market although home prices will stabilize at depressed levels, the committee finds.

While the U.S. financial system isn't too directly exposed to Europe, the continent is one of the largest U.S. trading partners.

"European leaders understand the need for strong, collective action to right the ship," Mokrzan says in the statement.

"If countries delay or don't take the necessary steps, the situation could escalate and further threaten the global economy."

Meanwhile, failure to deal with the fiscal cliff could prompt businesses to continue putting off hiring and investments

"We urge Congress and the administration to generate a consensus solution to avoid a devastating impact on the economy," Mokrzan says.

The Economic Advisory Committee of the American Bankers Association, consists of 12 bank economists from among the largest banks in North America.

The fiscal cliff could be so damaging that some see U.S. politicians putting aside their bickering and preventing the combination of tax hikes and spending cuts from sending the country back into recession.

"One thing we do expect Republicans and Democrats to agree on — given an unemployment rate of about 8 percent and continued risks to the U.S. economic recovery — is avoiding sudden fiscal adjustment," U.S. ratings agency Standard & Poor's says in a statement.

"We expect that a sudden fiscal adjustment could occur if all current tax and spending provisions, set to either expire or take effect near the end of 2012, go forward in accordance with current law."

The ratings agency has assigned the U.S. with a AA+ long-term rating but still carries a negative outlook thanks to political finger-pointing that often delays decisions to pay down debts.

The U.S. lost its AAA rating during the 2011 debt-ceiling debacle, when the country agreed to raise the debt ceiling at the very last minute.

moneynews.com