• China‘s growth re-accelerates in the second half after a first half slowdown to just above 8%.
• Downside risks: an oil price spike; a euro-area flare up; the US end-2012 fiscal cliff effect; a China investment slump.
• Upside risks: US consumers shrug off post-crisis blues, releasing pent-up demand; oil prices drop; euro tensions ease further.
• Healthier labor market will continue supporting a revival of pent-up consumer demand in 2012.
• Look for the FOMC to maintain its current policy for now, but to respond quickly if downside risks intensify.
• Policymakers won’t act until after the election to avert the effects of severe fiscal tightening scheduled to begin in 2013.
• Look for the European Central Bank to cut the refinance rate to 0.50% in July with risks skewed towards less and later.
• Assume the euro zone crisis will escalate and expect a new round of QE.
• Reconstruction is set to spur Japanese growth in the first half of 2012 even with slowing overseas economies.
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