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United States Country Risk Report Q4 2016

  • July 2016
  • -
  • Business Monitor International
  • -
  • 53 pages

Core Views

The US economy is set to grow at a rate below its historical trend in2016, as a strengthening labour market supporting private consumptionis offset by export and manufacturing headwinds. We forecastreal GDP growth of 1.9% in 2016, compared to 2.4% in 2015.The fiscal deficit will widen beginning in 2016, as Congress relaxesspending constraints put in place since 2011, rising interest ratesincrease debt servicing costs and mandatory spending obligationskeep upward pressure on expenditures.The US current account deficit will deteriorate marginally as a percentageof GDP, as lower fuel costs cause the country's import billto shrink but global headwinds and a strong dollar weigh on exports.The US benchmark federal fund interest rate will rise only modestlyin the coming quarters, and will not reach its terminal level until2018. High-frequency economic data in the US have been mixedover recent months, while downside risks to global growth remainsignificant.Major Forecast ChangesWe have revised our long-term fiscal and government debt projections,and we now expect the US fiscal gap to steadily widen overthe next ten years, averaging 3.9% of GDP from 2016 to 2025. Bythe end of that period, we expect government debt to rise to 85.9%of GDP from 73.1% in 2016.

Table Of Contents

United States Country Risk Report Q4 2016
Executive Summary. 5
Core Views5
Major Forecast Changes..5
Key Risks..5
Chapter 1: Economic Outlook 7
SWOT Analysis.. 7
BMI Economic Risk Index 7
Economic Growth Outlook. 8
Four Scenarios For Growth And Inflation.8
Our core view is that the US economy will muddle through over the coming years. However, we highlight a number of other scenarios
that could play out over this period, depending on whether growth and inflation perform more or less strongly than we anticipate in our
core view.
TABLE: RISK SCENARIOS8
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS.9
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: NET EXPORTS FORECASTS..10
Fiscal Policy And Public Debt Outlook 11
Deficit To Widen As Spending Commitments Rise..11
While we expect polarisation surrounding the US budget to resume, we anticipate modest fiscal expansion in the years ahead, driving a
widening in the deficit.
TABLE: KEY FISCAL INDICATORS12
Structural Fiscal Position. 13
TABLE: BUDGET MAKING PROCESS.13
Public Debt Outlook. 15
External Trade And Investment Outlook. 17
Current Account Headwinds To Hit Peak In 2016.17
A relatively strong US dollar will drive a widening of the US's current account deficit as import demand remains solid and exports soften.
Outlook On External Position. 18
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE18
TABLE: TOP GOODS IMPORTS..19
TABLE: TOP GOODS EXPORTS.19
TABLE: CURRENT ACCOUNT BALANCE FORECASTS20
Monetary Policy.. 21
Fed On Hold Until 2017..21
Heightened financial market volatility brought upon by Brexit, alongside low inflation and subdued US economic growth, will force
policymakers to hold off from raising rates in 2016.
Monetary Policy Framework 23
TABLE: MONETARY POLICY FORECASTS.23
Chapter 2: 10-Year Forecast. 25
The US Economy To 2025 25
Down But Not Out..25
The US economy's pace of growth is set to slow over the next 10 years to a long-term rate of 2.1% as deleveraging from a massive
credit binge and demographic shifts takes their toll.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.25
Political Outlook.. 29
SWOT Analysis 29
BMI Political Risk Index. 29
Domestic Politics.. 30
Policy Continuity Ahead As Clinton Presidency Likely.30
Presumptive Democratic nominee Hillary Clinton will likely be the next president of the US, given that her opponent, Donald Trump,
will be unable to sufficiently expand his narrow base of support. Clinton will broadly continue the policies of President Barack Obama,
leading to only modest changes for the US's business environment and economic trajectory through 2020.
TABLE: POLITICAL OVERVIEW..30
Long-Term Political Outlook.. 32
Fiscal And Inequality Concerns To Drive Political Debate..32
The long-term political outlook for the United States is improving, both at home and abroad. Nevertheless, there remain significant
obstacles to policymaking, including rising polarisation in Washington and a growing mistrust of elected officials among the electorate.
Chapter 4: Operational Risk. 37
SWOT Analysis 37
Operational Risk Index.. 37
Operational Risk. 38
Labour Market Risk..38
TABLE: DEVELOPED STATES - LABOUR MARKET RISK..38
Logistics Risk..41
TABLE: DEVELOPED STATES - LOGISTICS RISK.42
Crime And Security Risk..44
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK..45
Trade And Investment Risk.46
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK47
Chapter 5:BMI Global Macro Outlook. 49
Global Macro Outlook. 49
Brexit Risk Casts A Long Shadow..49
TABLE: GLOBAL ASSUMPTIONS..49
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %50
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %..51
MACROECONOMIC FORECAST.53
TABLE: MACROECONOMIC DATA and FORECASTS.53

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