Boston, MA -- (SBWIRE) -- 03/05/2013 -- Core Views

We have raised our real GDP growth forecast to 2.3% from 2.1% for 2013, due to stronger-than-expected economic data at the end of 2012 and a relatively favourable resolution to the 'fiscal cliff' issue at the beginning of the year.

Following the 2012 elections, the status quo in Washington remains relatively intact meaning that political deadlock will continue to be the order of the day. We expect the debt ceiling and 'sequester' spending cut issues to be resolved without too much damage to the economy.

On the monetary front, the Federal Reserve announced in December that it would purchase an additional US$45bn per month in 'longer-term' treasury securities, pushing the growth of the Fed's balance sheet to US$85bn per month. We also expect the Fed to keep benchmark interest rates at around zero until 2016. This will be supportive of growth, but not a panacea in the face of ongoing private sector deleveraging.

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Major Forecast Changes

Our real GDP growth estimates have risen to 2.2% for 2012 (from 2.0% previously) and 2.3% for 2013 (from 2.1%).

Key Risks To Outlook

Downside Risks To Growth Forecast: The biggest external risk is a collapse of the eurozone, which would hit the US via a financial sector shock and trade channels. A major domestic policy error, especially with regards to the debt ceiling and, could push the US into recession.

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