Country Report United States October 2009

Outlook for 2010-11

• Despite some loss of support recently, the Democrats still look likely to retain their hold on both houses of Congress in the November 2010 mid-term election. The Republicans are currently too weak to present a serious challenge.
• Concerns about the fiscal position will increasingly dominate the policy discussion. A healthcare reform is likely to be approved, despite massive opposition.
• The Federal Reserve (Fed, the central bank) will keep its policy rate target at just above 0% in 2010, but will start a slow increase in interest rates in 2011.
• Massive fiscal and monetary stimulus will lead to a recovery in GDP growth to 1.9% in 2010, from a contraction of 2.4% in 2009. Growth will slow to 1.3% in 2011 as the stimulus fades.
• The likelihood of a W-shaped growth trajectory is high, as domestic demand is likely to remain weak and financial intermediation is impaired.
• Consumer price inflation should turn positive again in 2010-11, from negative territory in 2009 as a result of a year-on-year fall in commodity prices, but will remain low owing to the massive slack in the economy.
• The current-account position will improve sharply. We expect the current-account deficit to fall to 2.7% of GDP in 2009 and remain low in 2010 and 2011, owing to lower commodity prices and weaker domestic demand.

Monthly review

• The debate about healthcare reform has turned highly political, with ideological confrontations overwhelming the discussions on technical details.
• Policy on Afghanistan remains a serious challenge for the administration, and the US military is likely to request further troops to be sent to the troubled nation.
• The president, Barack Obama, has abandoned a ground-based missile defence project, an important concession to Russia.
• So far progress on new financial services regulation has been limited, as the political scene has been dominated by debates about the healthcare reform.
• The OBM has published is mid-session review of fiscal projections and now expects the budget shortfall over the next decade to total a massive US$9trn.
• The economic recovery has become more entrenched, but doubts remain, not least about the soundness of the financial sector.
• Trade tensions with China have increased as a result of a decision by the US administration to impose special safeguard tariffs on Chinese tyres.

Source: Country Report

This report covers the following industry codes:
SIC Code: 89;48;53;49;60;70
NAICS Code: 81;517;44;22;52;72