Downside risks abound

Our baseline forecast for the US economy looks fairly benign, with GDP growth gradually picking up from 1.5% annualised in the second half of this year to 2.0% next year. However, we would stress that the risks to that forecast are very much skewed to the downside, particularly the risk of a disorderly break-up of the euro-zone that triggers a renewed financial crisis and the risk that Congress doesn't reach an agreement to avoid the tax increases and spending cuts scheduled to take effect at the start of next year. If either of those things actually happened, the US economy could be pushed back into recession.