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United States Business Forecast Report Q4 2012

United States Business Forecast Report Q4 2012 - new country guide report published

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2013-01-01 02:54:55 - United States Business Forecast Report Q4 2012 - a new country guide report on

The US economy continues to expand at a very modest pace. The downside shock risks remain prevalent, but the balance of evidence suggests that the economy has and will continue to avoid recession barring a major external crisis or the triggering of the ´fiscal cliff´ in 2013. Though private consumption will remain relatively weak by historical standards, residential investment is slowly recovering, and business investment will continue to grow.

On the monetary front, the Federal Reserve will keep benchmark interest rates at around zero until 2014, with a good chance that a further round of quantitative easing will be implemented by the end of 2012. This will be supportive of growth, but not a panacea in the face of ongoing private



sector deleveraging. On the fiscal front, we have very low expectations for further stimulus. 2012 is an election year, and the Republican Party majority in the House of Representatives has been obstinate in approving stimulatory policy for fear it might create favour for the incumbent Democratic president, Barack Obama.

Major Forecast Changes

We have lowered our 2013 real GDP growth forecast to 2.1%, from a previous forecast of 2.4%, owing to increasing domestic and external headwinds. We have revised down our already bearish forecasts for the euro versus the US dollar. We forecast that the euro will average US$1.27/ EUR in 2012 (revised down from a previous forecast of US$1.29/ EUR), sliding to US$1.22/EUR in 2013 (revised down from US$1.25/ EUR).

Key Risks To Outlook

Downside Risks To Growth Forecast: The biggest 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 2013 ´fiscal cliff´, could push the US into recession

Downside Risks To Long-Term Outlook: The gaping fiscal deficit and rising government debt burden are not an immediate concern but do pose a risk to macroeconomic stability over the longer term.

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Mike King
Phone: London: +44 (0) 203 086 8600

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