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United States Business Forecast Report Q2 2010Published by: Business Monitor International Published: Feb. 5, 2010 - 70 Pages Table of Contents
AbstractWe have substantially upgraded our US 2010 real GDP growth projection to 2.4% from 1.9%, whiledowngrading our 2011 projection from 2.3% to 1.8%. Basically, we believe that once stimulusmeasures and cyclical components of the rebound have run their course, the underlying weakstate of the economy - with elevated unemployment, deflation, and a battered banking system- will be revealed. We believe that growth will come in below 1.5% for a few quarters, startingin Q310. This would continue for a few quarters, leading to a full-year 1.8% figure for 2011, withgrowth eventually picking up in H211. This is not a classic ‘double-dip’ recession, as in the early1980s when economic growth went sharply negative again following a nascent recovery. It simplyreflects the inevitable slowdown following the winding down of fiscal and monetary stimuli, whichwill reveal the underlying weak state of the economy across the categories of expenditure.The biggest concern for us is the likelihood of a jobless recovery, in which a return to growth isnot accompanied by a significant drop in the unemployment rate and rising wages. If the economyis going to continue to pick up steam going into 2010, as we expect, that should help the labourmarket toward the end of 2010 (as unemployment is a lagging indicator). If we are correct aboutthe economy weakening toward the end of 2011, unemployment is likely to remain fairly high goingforward. This will hurt consumer confidence, and ultimately, consumption. Given this economic outlook, one of the biggest upside risks to our macroeconomic forecastsis political: namely, another round of massive stimulus spending by Washington. To be fair, thedownturn would have been far worse in the absence of government intervention. But there are nofree lunches with fiscal stimulus, so while new spending may boost near-term growth, there will be aprice to be paid down the road in higher taxes and weaker marginal returns to future stimulus. Morefrightening is that in the event of another economic downturn, the authorities would find themselvesrunning out of options. Interest rates cannot be cut any further; it would be impossible to greatlyincrease the growth of base money injected into the economy (as it is already off the scales); andpolls indicate that future stimulus efforts may be met by a taxpayer revolt. The Democratic loss ofa senate seat in Massachusetts, which occurred as we went to press, is likely to cause a significantreconsideration of the White House’s domestic priorities. T he 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 serious possibility.The banking sector remains fragile, which weakens the outlook for business lending. Following thenationalisation of automakers, banks and insurers, government involvement in the private sectormay be set to increase further, with wide-sweeping health care reform being debated in Washington.Even trade protectionism is beginning to crop up, with the US in early September imposingtariffs on Chinese tyres. T he Obama administration’s ambition to rebuild the US’s creaky physicalinfrastructure is also welcome, but it could be many years before the impact of any plans will befelt. Get Full Details About This Report >> |
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