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United States Business Forecast Report Q1 2010

Published by: Business Monitor International

Published: Oct. 30, 2009 - 64 Pages


Table of Contents


Executive Summary
A Long Road To Recovery
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Protectionist Actions Not Yet Cause For Alarm
The protectionist actions pursued by the Obama administration in the wake of the economic downturn are worrying, but
we are not yet concerned that they will lead to a full-blown global trade war.
Table: US Political Overview
Foreign Policy
Obama: Decision Time On Afghanistan And Iran
US President Barack Obama is facing a critical moment in his Afghanistan and Iran policies which, if mishandled, could
tarnish his presidency, not to mention jeopardise regional security.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
A Long Road To Economic Recovery
Despite our upgraded projections for near-term real GDP growth, we maintain that the US economic recovery will be
sluggish going into 2010. The economic path ahead will be characterised by lingering unemployment, deflation
and deleveraging.
table : GDP BY EXPENDITURE
Labour Market Outlook
US Cannot Afford Another ‘Lost Decade’ For Employment
Employment data indicate that the US labour market has experienced a ‘lost decade’, with weak job creation in the
early part of the 2000s followed by the recent culling of the workforce.
Fiscal Policy
Weak Economy Will Leave Budget Gaps For Years
The gaping US federal budget deficit is set to narrow over the coming few years, but we are still projecting poor
performances in 2010 and 2011 and do not anticipate a flip back into surplus over the forecast period to 2019.
table : FISCAL POLICY
Balance of Payments
First Phase Of Rebalancing Complete, But More To Come
As the ‘rebalancing act’ in the US external accounts continues, we anticipate the average annual current account
deficit to come in at 2.0-2.5% over a long-term horizon, compared with 6.0% as recently as 2006.
table : CURRENT ACCOUNT
Monetary Policy
Easy Policy Will Last A While
Fiscal and monetary policy is likely to remain stimulative well into 2010 and probably into 2011.
table : MONETARY POLICY
Chapter 3: 10-Year Forecast
The US Economy To 2019
Economy Down, But Not Out, Over The Long Run
The US economy’s pace of growth is set to slow over the next 10 years to a long-term rate of 2.2-2.3%, as deleveraging
from a massive credit binge takes its toll.
table : UNITED STATES Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
The World’s Fiscal Conundrum
Bleeding Red Ink Across The Globe
Table: WORLD GOVERNMENT EXPENDITURE INDICATORS
Table: WORLD GOVERNMENT REVENUE INDICATORS
Table: WORLD FISCAL BALANCE INDICATORS
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS & OPERATIONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
Market Orientation
table : LATIN AMERICA, ANNUAL FDI INFLOWS
TABLE: BMI TRADE RATINGS
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
Chapter 6: Key Sectors
Textiles & Clothing
Table: Textiles And Clot hing Production And International Trade, 2006-2013
Pharmaceuticals
Table: United States Generics Market Forecast 2004-2018
Chapter 7: BMI Global Asumptions
Global Assumptions
TABLE: GLOBAL ASSUMPTIONS
TABLE: GLOBAL & REGIONAL REAL GDP GROWTH
Table: COMMODITY PRICES

Abstract

Despite our upgraded projections for near-term real GDP growth, we maintain that the US economicrecovery will be sluggish going into 2010. The economic path ahead will be characterisedby lingering unemployment, deflation and deleveraging. We do not argue with the potential forstrong growth going into 2010, but where we differ from the consensus is our view that growthwill disappoint thereafter. Long-term trend growth is likely to be lower as household savings rateshead back towards historic averages and the government reins in spending and raises taxes. In themeantime, fiscal and monetary policy is likely to remain very accomodative as authorities fearinga renewed economic collapse will be retiscent to remove stimulus.

T he biggest concern for us is the likelihood of a jobless recovery, in which a return to growth is notaccompanied by a significant drop in the unemployment rate and rising wages. The problems inthe labour market in the current recession appear more structural than simply cyclical in nature,and it may be many years before the unemployment rate returns to healthy levels. We believethat job creation will be the key to any sustainable economic recovery, as it will determine the fateof private consumption, inflation, fiscal policy and the US’s debt repayment capacity. Consumerspending will be constrained by high unemployment and higher savings rates, which will dragdown overall growth in an economy that is heavily dependent on private consumption.

President Barack Obama’s post-election honeymoon is at an end, with his popular approval ratingsat very low levels. The most contentious issue in Washington is healthcare reform - Obama’sself-declared ‘highest legislative priority’ - and the outcome of the legislative process may definehis presidency, for better or for worse. Although the Democratic Party’s grip on both housesof Congress will give him leeway to enact new policies, there are signs of dissent both withinthe ranks and across the aisle. The Republican Party has few prospects of retaking either theHouse of Representatives or the Senate in the 2010 legislative mid-term elections, but they willlikely pick up seats, given our outlook for continued economic strife and continued division overhealthcare reform.

The US’s accomodative business environment is under threat on several fronts. The deterioratinggovernment budget deficit means that corporate tax increases in the future are a seriouspossibility. The banking sector remains fragile, which weakens the outlook for business lending.

Following the nationalisation of automakers, banks and insurers, government involvement inthe private sector may be set to increase further, with wide-sweeping healthcare reform beingdebated in Washington. Even trade protectionism is beginning to crop up, with the US in earlySeptember imposing tariffs on Chinese tyres. The Obama administration’s ambition to rebuildthe US’s creaky physical infrastructure is also welcome, but it could be many years before theimpact of any plans will be felt.

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