The strengthening US economy likely is healthy enough to withstand the government shutdown and the debt ceiling debate provided that these uncertainties can be resolved fairly quickly, according to report by Standish Mellon Asset Management Company, fixed income specialist for BNY Mellon.
The Standish view was published in its October Global Macro Views, which also is projecting economic growth to accelerate in the US and most international markets in 2014, with China and Japan being the notable exceptions.
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Thomas Higgins, chief economist for Standish, said: "Political dysfunction in the United States is temporarily diverting attention away from improving economic data."
In the US, Standish expects real gross domestic product (GDP) to rebound to 2.5% in the 2013 fourth quarter, which would bring GDP growth up to 2% for the full year. For 2014, Standish is forecasting GDP growth of 2.3%.
Considering this outlook, Standish said that it expects the Federal Reserve to begin tapering in December or early next year, assuming the battle over the debt ceiling is resolved.
The global economy is expected to expand 3% in 2013 and then accelerate to 3.4% growth in 2014, the report said.
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By GlobalDataHiggins added: "We are beginning to see tentative signs that the pickup in euro area growth is having a positive knock-on effect in Eastern Europe, and we expect economic activity to accelerate in Latin America due to stronger global demand next year."
In the euro area, Standish is looking for 1% growth in GDP in 2014, as the region continues to dig out of the recession, which lasted for six quarters before the economy began growing in the second quarter of 2013. In the United Kingdom, real GDP is expected to climb from 1% in 2013 to 1.5% in 2014.
China in the 2013 third quarter appeared to have successfully balanced growth and inflation, Standish said.
Standish raised its projection for China’s 2013 GDP growth from 7.2% to 7.5%. However, the October report notes, "We are worried about downside risk to our seven percent (GDP) growth forecast in 2014, particularly if there is slow progress on rebalancing the economy away from investment and toward consumption."
For Japan, GDP growth could slow from 2.1% in 2013 to 1.8% in 2014, Standish said. However, the report notes, "Looking forward, we expect the Japanese economy to continue to expand as investment accelerates, private consumption remains strong ahead of the value-added tax hike scheduled for April of next year, and exports continue to grow."
