Country Report United States April 2009

Outlook for 2009-10

• Barack Obama will get some key measures approved in Congress, although there could be defeats on some in the Senate. The Democrats are likely to retain their hold on both houses of Congress in the mid-term election in 2010.
• Mr Obama will focus on implementing his campaign promises on healthcare reform. Some important progress in extending coverage to those currently uninsured seems likely, despite substantial obstacles.
• A new fiscal stimulus package, approved in February, includes further measures to revive financial markets and the depressed economy, but will drastically increase the federal deficit.
• The Economist Intelligence Unit expects the Federal Reserve (Fed, the central bank) to keep its policy rate target at just above 0% for 2009, before tightening very slowly from the second half of 2010.
• Real GDP is forecast to contract by 3.2% in 2009 as the financial crisis and the housing downturn take their toll on domestic demand. Slowing growth in the developed world will also curb US export growth in 2009.
• Average consumer price inflation is set to turn negative in 2009 as a result of declining commodity prices. Inflation should turn positive again in 2010, but will remain low owing to the severe weakness of domestic demand.
• The outlook for the current-account position is for an improvement over the forecast period. We expect the current-account deficit to narrow to 3.6% of GDP in 2009 on the back of lower commodity prices.

Monthly review

• Mr Obama has set out an ambitious agenda, resisting the inclination to focus all his attention on overcoming the financial crisis and instead combining economic and financial fire-fighting with more long-term projects.
• The Fed has continued to extend is arsenal of non-conventional measures to fight the financial crisis. In March it announced plans to buy an additional US$1trn in financial assets to ease market strains, including US Treasuries.
• The Treasury has announced the creation private-public funds that would purchase toxic assets from banks to reduce the uncertainty about banks' balance sheets. However, further capital injections will remain necessary.
• Some recent indicators suggest that the worst may be over. However, a widely expected genuine recovery is still unlikely for some time, and growth will remain very weak for the rest of this year.

Source: Country Report