Country Report United States May 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. Major progress in extending coverage to those currently uninsured seems likely.
• 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 and 2010. Unorthodox monetary policy measures will be phased out next year.
• 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 current-account position will improve. We expect the current-account deficit to fall to 3.6% of GDP in 2009 partly owing to lower commodity prices.

Monthly review

• Mr Obama has eased embargoes on Cuba and reached out to Iran, signalling that he wants to focus more on diplomatic means to achieve his goals. Mexico's drug war has become a major concern for the US.
• Mr Obama has set out the long-term goal to eliminate nuclear weapons, but this is unlikely to be achieved. The defence secretary, Robert Gates, has initiated a major review of military spending.
• Stress tests of major banks are likely to find that the banks remain viable but they will probably require massive new capital injections.
• Public finances are deteriorating at a rapid pace. The fact that healthcare reform will be approved under budget rules has increased the chances that the project will be approved.
• Recent indicators suggest that the collapse in economic activity is coming to an end but hopes of a rapid recovery are misguided, as it will take time to absorb imbalances built up during the earlier boom.

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