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The world's biggest economy will shrink 1.3pc in the first half of 2013 if a mix of tax increases and spending cuts currently scheduled all come into force at the end of the year, the Congressional Budget Office (CBO) said. The CBO's warning is the loudest yet about a fiscal threat that is of increasing concern to Federal Reserve chairman Ben Bernanke as well as economists on Wall Street. "Given the current state of the economy, immediate spending cuts or tax increases would represent an added drag on the weak economic expansion," said the CBO. At the moment, tax cuts first introduced by George W. Bush are set to expire at the end of the year, while more than $1 trillion (£637m) of spending cuts are also due to take effect in early January. Economists at Bank of America estimate that taken together, it will amount to a fiscal contraction of between 3.5pc and 4pc of US gross domestic product.