However, the big risk facing the US economy is the nature of the fiscal contraction. The fiscal policy political gridlocks have led to what is in effect haphazard fiscal contraction. The possible headwinds from this could be quite significant and pose a risk to the sustainability of the recovery.
Ironically, a rapid US recovery poses other risks, as we have seen in the past few weeks arising from the possibility of an earlier-than-expected reduction in quantitative easing. There is not only uncertainty about the timing of this reversal, but also of the implications for capital flows and bond markets in emerging markets.