Boston, MA -- (SBWIRE) -- 06/05/2013 -- We have downgraded our US real GDP growth forecast for 2013 to 2.1% from 2.3%, due mainly to base effects from late 2012 and the decision to maintain the 'sequester' cuts to federal spending.

Our core view on the US economy is that the recovery is becoming increasingly entrenched, and that by 2014 many of the headwinds to growth will be dissipating.

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.

On the monetary front, we expect the Federal Reserve to begin slowing the rate of its asset purchases in Q413, and stop purchasing further assets altogether in H114. We have also moved our forecast for the first Fed funds rate hike to late 2015, from a previous projection of early 2016.

Major Forecast Changes

We have revised down our real GDP growth forecast for 2013 to 2.1% from 2.3%. Our 2014 growth forecast of 2.7% represents a major bounce from 2013, and is an upgrade from our previous projection of 2.5%.

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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 via trade channels. A major domestic policy error, especially with regards to the debt ceiling, could push the US into recession.

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