The latest economic forecast from the University of Iowa’s MBA student financial analysts sees slow but steady growth over the next two years, with political uncertainty in the U.S. and Europe keeping unemployment above 7 percent.

The analyst team is made up of 13 students enrolled in the UI Tippie School of Management’s Finance Academy and who manage the $2.7 million Henry Fund stock portfolio. Looking ahead, the team forecasts real GDP growth of 2.03 percent through February 2013, with a 3.1 percent growth in the following 18 months. While both are well below historic averages, the analysts don’t believe the economy is near recession.

The analysts see inflation staying mostly in check, with a rate of 1.9 percent by February and 2.8 in the subsequent 18 months. Unemployment will stay stubbornly high, though, with a projected rate of 8.1 percent in February and 7.5 percent over the following 18 months.

Political concerns remain top of mind for the analysts, with the U.S. election and European debt crisis the most significant uncertainties (the current forecasts were made before this week’s violent demonstrations in Libya and Egypt). They believe that budgetary turmoil in the Eurozone economies is likely keeping interest rates artificially low due to a “flight to quality” in U.S. Treasury securities.

The team is less concerned about the fiscal cliff that will appear when the U.S. debt ceiling maxes out in December and must be raised by legislative action. The analysts believe Congress will approve a temporary extension until a new president and Congress can reach a more permanent solution after Inauguration Day.

As for stocks, the analyst team sees a Catch 22. With slow economic growth, they believe that defensive sectors such as consumer staples and utilities are best for growth, but recent run-ups in the price of stocks in those sectors have left many of them overvalued.

Meanwhile, the team believes that stocks that are underpriced are in sectors poorly positioned to grow in a slow-growth economy.

The analysts note that many companies are holding onto large reserves of cash that they likely won’t invest until after many of the political questions have been resolved.

The analysts will make their next forecast in October.