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United States Country Risk Report Q2 2016

United States Country Risk Report Q2 2016

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 Forecast

We 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%.


Executive Summary
Core Views
Major Forecast
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Decelerating Investment Will Weigh On Growth
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
TABLE: KEY ECONOMIC INDICATORS
TABLE: PRIVATE CONSUMPTION FORECASTS
Fiscal Policy And Public Debt Outlook
2016 Spending Bill Points To Looser Spending Controls
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 FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: NET EXPORTS FORECASTS
TABLE: FISCAL DATA
TABLE: BUDGET MAKING PROCESS
External Trade And Investment Outlook
External Vulnerability Will Be Muted, Despite Headwinds
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
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP GOODS IMPORTS IN 2014
TABLE: TOP GOODS EXPORTS IN 2014
Monetary Policy
End Of An Era But Accommodative Rates To Remain
The US Federal Reserve increased its target range for the benchmark federal funds rate to 0.25-0.50% from 0.0-0.25% 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
Chapter 2: 10-Year Forecast
The US Economy To 2025
Down, But Not Out
The US economy's pace of growth is set to slow over the next 10 years to a long-term rate of 2.5% as deleveraging from a massive
credit binge and demographic shifts takes their toll.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Three Scenarios For Trump's 2016 Election Campaign
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
Structural Political Characteristics
Long-Term Political Outlook
Fiscal And Inequality Concerns To Drive Political Debate
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
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: DEVELOPED STATES – LABOUR MARKET RISK
TABLE: DEVELOPED STATES – LOGISTICS RISK
TABLE: DEVELOPED STATES – CRIME AND SECURITY RISK
TABLE: DEVELOPED STATES – TRADE AND INVESTMENT RISK
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: UNITED STATES – MACROECONOMIC DATA & FORECASTS

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