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Saturday, April 13, 2024
CEOWORLD magazine - Insights - United States

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United States

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GDP: USD25462.7bn (World ranking 1)
Population: 333.3mn (World ranking 3)
Form of state: Federal Republic
Head of government: Joe Biden (President)
Next elections :2024, Presidential and legislative

Strengths

• World’s largest economy
• Effective governmental checks and balances
• High per capita GDP
• High data transparency
• Reserve currency
• Large oil and gas reserves
• Diverse GDP
• Strong underlying productivity growth

weaknesses

• Increasing political polarization and
unpredictability of policymaking
• High public debt that will continue to rise
absent major fiscal tightening
• Social disruption
• Increasing shortages of labor an obstacle
to re-industrialization drive

Economic overview
Heading for a soft landing as supply-side of the economy
improves

The US bounced back rapidly from the pandemic-induced
downturn and has been easily outpacing developed
market peers since then. In 2023, the US economy remained
remarkably resilient to the Fed-induced sharp rise in interest
rates, thanks to the unwinding of consumer savings built up
during the pandemic, loose fiscal policy and solid corporate
and household balance sheets. Meanwhile, inflation
and wage growth have cooled down amid the ending of
global supply-chain disruptions, an easing of labor market
conditions and the Fed’s high credibility in anchoring
medium-term inflation expectations close to targeted
inflation.
For 2024, GDP growth should step down. The high interest
rate environment is starting to weaken some segments of the
economy beyond construction. Consumer loan delinquencies
have started to pick up, while cyclical hiring (e.g., in retail)
is losing momentum. Meanwhile, some of the factors that
boosted 2023 growth should reverse, such as tighter (though
not overwhelming) fiscal policy. At the corporate level,
prolonged tight lending standards from banks should lead
to a weakening of business investment – already evidenced
in lower capex intentions. Households are expected to slow
their usage of pandemic savings – which are still far from
being exhausted yet – to fund consumption expenditures:
data indicate that households have been increasingly shifting
their funds from liquid deposits to less liquid time deposits
and money market funds. Against this backdrop, solid private
sector balance sheets, falling inflation and an improvementof the supply side of the economy (through a boost to labor
supply and a pick-up in productivity) should allow the US
economy to head towards a soft landing in 2024
Corporate bankruptcies should continue to rise through 2024
as economic momentum falters and catch-up effects from
the pandemic continue to play out. However, solid corporate
balance sheets (in particular, high cash buffers and low
debt-to-equity ratio) should keep them contained. Against
this backdrop, the US is expected to retain one of the highest
rates of medium-term GDP growth potential amongst large
developed markets.

Structural vulnerabilities

The US remains the world’s largest economy and, despite its
dominance being challenged, the US dollar remains by far
the world’s largest reserve currency. US financial markets
are the largest and the deepest globally, providing cheap
and liquid financing. Nevertheless, the economy is carrying
a tremendous debt load. Independent research bodies
such as the Congressional Budget Office (CBO) expect the
public debt load to continue rising rapidly over the coming
decades in the absence of ambitious policy measures to rein
in spending and/or increase revenues. Increasing political
infighting makes this prospect unlikely, at least in the short
term.
There is also an inexorable demographic of an aging
workforce as “Baby Boomers” are retiring and will continue
doing so for much of this decade. At the same time, there
will not be enough workers to support this ever-growing
population of older, sicker retirees. Labor shortages are set
to worsen over the coming years and decades, which will
increasingly constraint the ability of the US economy to boost
the share of manufacturing significantly.The US also suffers from persistently high trade and current
account deficits. While the Treasury securities used to finance
these deficits remain highly liquid, the occasional battles
to raise the debt ceiling create unnecessary turmoil in the
financial markets and threaten the country’s credit rating.

Business environment and political developments

The business environment in the US is very accommodating,
consistently ranking amongst the top performers in Ease
of Doing Business reports. The hallmarks of the economy
include strict enforcement of contracts, the ease of resolving
insolvencies, the rule of law in general and the easy access to
credit.
Politics is becoming increasingly divisive, both between and
within political parties. Repeated disagreements over the
debt ceiling and the budget have increased economic and
political uncertainties. Some of President Biden’s flagship
legislation – such as large green subsidies – could be removed
or watered down if a Republican wins the presidential
election in November 2024. However, measures introduced
to counter China’s growing influence – such as export
restrictions on high-end chips and chipmaking equipment –
are unlikely to be phased out by a Republican amid political
consensus to rein in China’s access to western technology.
Moreover, the strong policy push towards re-industrialization
is likely to continue whoever wins the White House and
Congress in the next elections.
A Trump 2.0 presidency could have far-reaching
consequences for both the US and the rest of the world
though. Trump’s campaign pledges include more customs
tariffs being levied – including against western allies – and
the seizing of some of China’s strategic assets on US soil. On
the domestic side, a Trump presidency would probably mean
lower taxes and the return of the deregulatory agenda

 

CEOWORLD magazine - Insights - United States