Every indexed document

we expect only moderate fiscal tightening of about

Republicans will likely lose seats in the House overall

with some downside risk due to rising uncertainty. The Fed has decided to extend so

coupled with stable core PCE inflation close to the Fed’s

political gridlock and some fiscal tightening

etc.); a possible Portuguese default; a Greek euro exit; or a major external growth shock.

enhancing pressure also on Italy; serious political disagreement in core countries (for instance after

as peripheral countries' budgets stay on track and economic activity recovers

there is practically no leeway for fiscal stimuli. The near-term growth impact of any fiscal

including the possibility of a rate reduction.

but the bar to support the economy and markets has been lowered substantially. We

economic surveys are commensurate with a quarterly GDP contraction

which have produced a viable government coalition. The Troika may only

but the risk of a euro exit over the next six months has diminished

and the request for external support for

and 3. a sharp deceleration of the Chinese economy. Each

mitigating the drag from fiscal austerity.

economic activity is likely to remain very sluggish

we lowered our 2Q 2012 real GDP growth forecast to an

China started to ease monetary policy. The country is better placed than other EM