Country Report United States March 2009

Outlook for 2009-10

• The new Democratic president, Barack Obama, has a clear popular mandate and a substantial majority in both houses of Congress. However, Mr Obama will find it hard to get legislation approved in the Senate.
• 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.
• 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.
• 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 3.1% 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 US current-account position is for an improvement over the forecast period. We expect the current-account deficit to narrow to 2.5% of GDP in 2010 on the back of lower commodity prices.

Monthly review

• Mr Obama has run into difficulties over several nominations. His efforts to promote bipartisanship have shown little success, as a major stimulus bill, approved in February, was opposed by almost all congressional Republicans.
• A financial rescue package has received a cold response from financial markets. Notwithstanding protestations to the contrary, several major banks will probably have to be nationalised.
• Despite the focus on reviving the economy, Mr Obama's first budget showed some long-term priorities, such as an extension of healthcare coverage to the whole population and a significant cut in carbon dioxide emissions.
• GDP growth contracted by 6.2% in the fourth quarter of 2008, according to revised data. Indicators have remained very poor in recent months, suggesting a further substantial fall in GDP in the first quarter of 2009.
• There have been some signs of financial stabilisation but this has been largely induced by policy measures, and financial conditions remain very tight.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52