Fiscal cliff still likely to be averted

We still expect the newly re-elected President Obama and Congress to reach an agreement to avert most of the scheduled tax hikes and spending cuts that would otherwise kick in at the start of next year, albeit probably not until the last minute. The uncertainty may affect household and business spending over the next few weeks but, assuming a deal is done, there is also scope for a release of pent-up demand early next year. The global economic slowdown will continue to restrain US exports next year and a resurgence of the euro-zone crisis could shake US financial markets. Nevertheless, domestic demand growth should strengthen, particularly if the housing recovery continues to gather momentum.