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United States Country Risk Report Q1 2017

  • October 2016
  • -
  • Business Monitor International
  • -
  • 59 pages

Core Views

The US economy is set to grow at a rate below its historical trend in 2017, as a strengthening labour market supporting private consumption is offset by export and manufacturing headwinds. We forecast real GDP growth of 1.8% in 2017, compared to forecast growth of 1.5% in 2016. We project a Hillary Clinton presidential election victory and for Democrats to retake the Senate. Given the auspice of a divided government, we forecast only a modest widening of the fiscal deficit as a percentage of GDP to 3.4% in 2017 and 3.3% in 2018, from an estimated 3.1% in 2016 and below consensus expectations. Our core view of gridlock in Washington in 2017-2018 following the November 8 election suggests broad macroeconomic policy continuity going forward, likely under Hillary Clinton as president. However, there is a 25% chance of a 'sweep' by either the Democrats or Republicans in the election, an outcome that could lead to a significant shift in policy. The US benchmark federal fund interest rate will rise only modestly in coming quarters, and will not reach its terminal level until 2018. High-frequency economic data in the US have been mixed over recent months, while downsides risks to global growth remain significant. Major Forecast Changes We have revised our long-term fiscal and government debt projections, and we now expect the US fiscal gap to steadily widen over the next 10 years, averaging 4.1% of GDP from 2016 to 2025. By the end of that period, we expect government debt to rise to 89.2% of GDP from 73.8% in 2016.

Table Of Contents

United States Country Risk Report Q1 2017
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Major Forecast Changes.................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook ....................................................................................................................................... 8
Growth To Pick Up But Remain Weak In 2017..............................................................................................................................8
US economic activity will pick up modestly in 2017 as some significant drags to growth wear off. However, real GDP growth will remain
below 2.0%, and the economy will remain vulnerable to recession risks.
GDP By Expenditure Outlook.................................................................................................................................. 10
TABLE: GDP GROWTH FORECASTS....................................................................................................................................................................10
TABLE: PRIVATE CONSUMPTION FORECASTS..................................................................................................................................................11
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS..............................................................................................................................11
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................11
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................11
Fiscal Policy And Public Debt Outlook.................................................................................................................. 12
Momentum For Fiscal Expansion To Gain Steam......................................................................................................................12
The next US president will increase pressure on Congress to fund an expansion of fiscal policy against a backdrop of a recent rise
in populism and the prospect of monetary policy exhaustion. However, we expect a more muted fiscal stimulus package than those
proposed by either presidential candidate.
TABLE: SUMMARY OF KEY FISCAL POLICIES....................................................................................................................................................12
Structural Fiscal Position........................................................................................................................................ 16
TABLE: FEDERAL GOVERNMENT BUDGET PROCESS......................................................................................................................................16
External Trade And Investment Outlook................................................................................................................ 17
2016 Election: 25% Chance Of 'Extreme' Policy Formation......................................................................................................17
Our core view of gridlock in Washington in 2017-2018 following the November 8 election suggests broad macroeconomic policy
continuity going forward, likely under Hillary Clinton as president. However, there is a 25% chance of a 'sweep' by either the Democrats
or Republicans in the election, an outcome that could lead to a significant shift in policy. In addition, we believe that the potential for
Donald Trump to use 'executive orders' to steer US policy presents major risks that are being broadly underestimated.
Outlook On External Position.................................................................................................................................. 23
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE....................................................................................................................................22
TABLE: TOP GOODS IMPORTS IN 2015...............................................................................................................................................................22
TABLE: TOP GOODS EXPORTS IN 2015..............................................................................................................................................................24
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................24
Monetary Policy........................................................................................................................................................ 25
A Sticky Inflation Problem; Vote Infra In 2016............................................................................................................................25
Monetary Policy Framework.................................................................................................................................... 27
TABLE: MONETARY POLICY FORECASTS..........................................................................................................................................................27
Chapter 2: 10-Year Forecast................................................................................................................... 29
The US Economy To 2025....................................................................................................................................... 29
Down But Not Out..........................................................................................................................................................................29
The US economy's pace of growth is set to slow over the next 10 years to a long-term rate of 1.8% as deleveraging from a massive
credit binge and demographic shifts takes their toll. Nonetheless, BMI believes that the US is going to remain the world's greatest
economic power over our 10-year forecast period and beyond.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................29
Chapter 3: Political Outlook................................................................................................................... 33
SWOT Analysis......................................................................................................................................................... 33
BMI Political Risk Index........................................................................................................................................... 33
Domestic Politics..................................................................................................................................................... 34
2016 Election Scenarios: Pendulum To Swing To The Democrats..........................................................................................34
The US presidential election in November is garnering significant attention as ever, but there are also crucial elections for Congress that
will determine the next president's legislative fate. Our core scenario is a Hillary Clinton presidential victory, alongside a retention of the
House of Representatives by the Republicans and a takeover of the Senate by the Democrats. This scenario would result in relatively
high stability, but continued obstacles for enacting legislation in Washington.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................34
Foreign Policy........................................................................................................................................................... 37
The Next President: Implications For Latin America.................................................................................................................37
The outcome of November's US presidential election will greatly impact the economic trajectories of Central America and Mexico, given
their high reliance on trade and remittances, and the candidates' opposing views on immigration. Moreover, diplomatic relations could
be adversely impacted in the event of a victory for Republican Party nominee Donald Trump, with the ongoing rapprochement with Cuba
likely to be rolled back.
TABLE: CENTRAL AMERICA - PRIVATE FINAL CONSUMPTION CONTRIBUTIONS TO REAL GDP GROWTH, PP....................................... 37
Long-Term Political Outlook................................................................................................................................... 40
Fiscal And Inequality Concerns To Drive Political Debate........................................................................................................40
The long-term political outlook for the US 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................................................................................................................... 43
SWOT Analysis......................................................................................................................................................... 43
Operational Risk Index............................................................................................................................................ 43
Operational Risk....................................................................................................................................................... 44
TABLE: DEVELOPED STATES - LABOUR MARKET RISK...................................................................................................................................44
TABLE: DEVELOPED STATES - LOGISTICS RISK..............................................................................................................................................47
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK.......................................................................................................................... 50
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK..................................................................................................................... 52
Chapter 5:BMI Global Macro Outlook.................................................................................................... 55
Global Macro Outlook.............................................................................................................................................. 55
Broad Recovery But Three Notes Of Caution.............................................................................................................................55
TABLE: GLOBAL FORECASTS, 2015-2020........................................................................................................................................................... 55
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %.................................................................................................................................... 56
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %................................................................................................................................... 57
TABLE: MACROECONOMIC DATA and FORECASTS.............................................................................................................................................. 59

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