Last updated: October 26, 2012 7:36 pm

Romney seizes on lacklustre growth

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US GDP growth

Mitt Romney framed the US election as a choice between change and a failed status quo as new data showed mediocre economic growth of just 2 per cent at an annualised rate in the third quarter.

Delivering a speech in Iowa, the Republican nominee chastised the incumbent Barack Obama for running a campaign that was “small and petty”.

“A troubled economy is not all he inherited. He also inherited the greatest nation in the history of the earth,” Mr Romney said amid the cornfields of Iowa, which has emerged as a battleground state. “What he did with what he inherited made the problem worse.”

Economic growth was marginally ahead of analyst expectations of 1.8 per cent but only because of an unexpected and unsustainable jump in defence spending. Growth of 2 per cent was below the economy’s trend and not fast enough to bring about a steady reduction in unemployment.

The big story of the data was a fall in business investment – most likely driven by the slowdown in China and uncertainty about the US “fiscal cliff” – which offset a pick-up in the housing sector.

“Business investment remains a significant area of concern, as corporate America clearly remains hesitant to ramp up capital expenditures,” said Jim Baird, chief investment strategist at Plante Moran Financial Advisors. “This speaks volumes about their lack of confidence about the outlook for the economy and the need for greater clarity around fiscal policy.”

With unemployment high and growth lacklustre, the economy has been the central theme of the campaign, with Mr Obama asking voters for more time to let his policies work and Mr Romney arguing that a change in direction is needed to stimulate a stronger recovery.

Mr Obama’s campaign hit back at Mr Romney, saying that the 13th straight quarter of growth was evidence that “our economy continues to come back from the worst recession since the Great Depression under President Obama’s leadership”.

“Mitt Romney has given us nothing but a drastic plan that independent economists say would fail to create jobs, slow GDP growth by an average of nearly 1 per cent, and actually cost us nearly 2m jobs over the next two years,” said a spokesman for the Obama campaign. “There’s a clear economic choice in this election, and the American people want to move forward, not back.”

Mr Romney’s speech represented a tough indictment of Mr Obama’s record but exposed the Republican candidate to new questions about how he would execute his strategy, including his promise to reform healthcare while still providing protection to individuals with pre-existing health conditions.

The former Massachusetts governor said he would replace “government choice” in healthcare with “consumer choice”, “bringing the dynamics of the marketplace to a sector of our lives that has long been dominated by government”.

At a time of bitter partisan divide in Washington, Mr Romney also placed new emphasis on his record as governor in one of the most liberal states in the union.

The GDP data suggests that the economy will continue to grow but has little momentum and may be vulnerable to a setback if there are big tax rises or cuts to government spending in fiscal negotiations that will take place as soon as the election is decided.

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