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United States Country Risk Report Q2 2016

  • January 2016
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views

The US economy is set to grow at a rate below its historical trend in2016, as a strengthening labour market, which will support privateconsumption, is offset by export and manufacturing headwinds. Weforecast real GDP growth of 2.2% in 2016, compared to an estimated2.5% in 2015.The fiscal deficit will widen from 2016, as Congress relaxes spendingconstraints put in place since 2011, rising interest rates increase debtservicing costs, and mandatory spending obligations keep upwardpressure 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 leveluntil 2018. High-frequency economic data in the US have beenmixed over recent months, while downsides risks to global growthremain significant.Major ForecastWe have downgraded our forecast for economic growth, given themore persistent than expected struggles of the manufacturing sector.Given global headwinds, these struggles are likely to stretch into2016, and we now forecast growth of 2.2% this year, versus ourprevious projection of 2.6%.

Table Of Contents

United States Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Decelerating Investment Will Weigh On Growth8
Economic growth in the US will decelerate compared to 2015 as fixed investment continues to face headwinds from weakness in the oil
and gas sector Private consumption will continue to be the main driver of headline expansion as real wage growth begins to accelerate
with labour market tightness
GDP By Expenditure Outlook 9
TABLE: KEY ECONOMIC INDICATORS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
Fiscal Policy And Public Debt Outlook 10
2016 Spending Bill Points To Looser Spending Controls10
The budget bill passed at the end of December supports our view that spending will tick up in 2016, leading to a wider fiscal deficit
Meanwhile, the bipartisan support for the bill suggests that on budget issues, congressional gridlock is beginning to loosen
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: NET EXPORTS FORECASTS10
TABLE: FISCAL DATA11
TABLE: BUDGET MAKING PROCESS12
External Trade And Investment Outlook 14
External Vulnerability Will Be Muted, Despite Headwinds14
The strength of the US dollar and weakness in the global economy will weigh on the US current account in the coming years, and the
country's net international investment position will continue to deteriorate
Key Structural Characteristics 14
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE14
TABLE: TOP GOODS IMPORTS IN 201414
TABLE: TOP GOODS EXPORTS IN 201415
Monetary Policy 16
End Of An Era But Accommodative Rates To Remain16
The US Federal Reserve increased its target range for the benchmark federal funds rate to 025-050% from 00-025% and we
expect further hikes in the quarters ahead Domestic economic fundamentals will be strong enough to further raise rates but we stress
that a weak external environment and low inflation will keep the trajectory of future rate hikes subdued compared to historic hiking
cycles
Monetary Policy Framework 19
Chapter 2: 10-Year Forecast 21
The US Economy To 2025 21
Down, But Not Out21
The US economy's pace of growth is set to slow over the next 10 years to a long-term rate of 25% as deleveraging from a massive
credit binge and demographic shifts takes their toll
TABLE: LONG-TERM MACROECONOMIC FORECASTS21
Chapter 3: Political Outlook 25
SWOT Analysis 25
BMI Political Risk Index 25
Domestic Politics 26
Three Scenarios For Trump's 2016 Election Campaign26
Donald Trump, the current frontrunner for the Republican party 2016 presidential nomination, will have a substantial impact on the
general election in November In this article, we outline three scenarios for his campaign, namely: 1) he fails to win the Republican
nomination and bows out; 2) he wins the nomination; and 3) he runs as a third-party candidate
TABLE: POLITICAL OVERVIEW 26
Structural Political Characteristics 28
Long-Term Political Outlook 30
Fiscal And Inequality Concerns To Drive Political Debate30
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 35
SWOT Analysis 35
Operational Risk Index 35
Operational Risk 36
TABLE: DEVELOPED STATES - LABOUR MARKET RISK 36
TABLE: DEVELOPED STATES - LOGISTICS RISK40
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK42
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK45
Chapter 5: BMI Global Macro Outlook 47
Global Macro Outlook 47
Unfinished Business In 201647
TABLE: GLOBAL ASSUMPTIONS47
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %48
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 48
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %49
TABLE: UNITED STATES - MACROECONOMIC DATA and FORECASTS51

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