Don’t discount the U.S. economy

U.S. GDP will grow by 1.6% at most this year due to the government shutdown, says The Conference Board of Canada’s U.S. Outlook-Autumn 2013.

But it will reach 3.2% in 2014, and will be led by improvement in the housing market and investment spending. In fact, housing starts are expected to increase by close to 19% this year and by 26% in 2014, with real spending on residential construction is expected to expand by 29.4% in 2014.

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What’s more, fiscal restraint measures will likely ease, and real household spending is set to increase by 3.1% next year.

Most promising is the fact the fiscal outlook for the U.S. has continued to improve in the short term, despite recent fiscal negotiations. The deficit fell from $1 trillion in 2012 to $750 billion in 2013, and is expected to dip to $563 billion in 2014.

Monitor risks

Despite rosy predictions, investors and advisors should keep a close eye on U.S. markets, however.

To protect their portfolios, they should monitor how domestic and international risks affect the economy.

“Although the U.S. Congress avoided a default last week, the agreement is a stop-gap measure that failed to solve the basic differences between Democrats and Republicans over taxes and government spending,” says Kip Beckman, principal economist of the conference board.

“If we go through the same drama in January and February, our projection for stronger growth next year would be in jeopardy,” he adds. “Our optimistic outlook…is also contingent on the ongoing turmoil in the Middle East remaining largely contained, so that oil prices do not spike.”

Read: Strengthen exports to developing economies, says BoC

Further, volatility in financial markets could return in 2014 if the atmosphere in Washington continues to be tense over tax increases and entitlement programs.

These tax and spending measures have already contributed to the weak 2013 U.S. economic growth. Consider that real household spending is set to increase by a modest 2% this year.

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