2013-02-20 05:25:31 - New Country Reports market report from Business Monitor International: "United States Business Forecast Report Q2 2013"

Core Views

We have raised our real GDP growth forecast to 2.3% from 2.1% for 2013, due to stronger-than-expected economic data at the end of 2012 and a relatively favourable resolution to the 'fiscal cliff' issue at the beginning of the year.

Following the 2012 elections, the status quo in Washington remains relatively intact meaning that political deadlock will continue to be the order of the day. We expect the debt ceiling and 'sequester' spending cut issues to be resolved without too much damage to the economy.

On the monetary front, the Federal Reserve announced in December that it would purchase an additional US$45bn per month in 'longer-term' treasury securities, pushing the growth of the Fed's balance sheet to US$85bn per month. We

also expect the Fed to keep benchmark interest rates at around zero until 2016. This will be supportive of growth, but not a panacea in the face of ongoing private sector deleveraging.


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Major Forecast Changes

Our real GDP growth estimates have risen to 2.2% for 2012 (from 2.0% previously) and 2.3% for 2013 (from 2.1%).

Key Risks To Outlook

Downside Risks To Growth Forecast: The biggest external risk is a collapse of the eurozone, which would hit the US via a financial sector shock and trade channels. A major domestic policy error, especially with regards to the debt ceiling and, could push the US into recession.

Downside Risks To Long-Term Outlook: The gaping fiscal deficit and rising government debt burden are not an immediate concern, but do pose a risk to macroeconomic stability over a longer horizon.

Partial Table of Contents:

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Unfinished Business In 2013
- Our core view of President Barack Obama being re-elected and Congress remaining split was proven correct on US election day on November 6. With the tax side of the fiscal cliff issue largely resolved as of early January, Washington's attention will turn to the debt ceiling and the automatic spending cuts due to take hold in March - but as usual, we expect partisanship to prevent ready solutions to the many problems facing the federal government.
TABLE: POLITICAL OVERVIEW
Foreign Policy
US 'Energy Independence': Geopolitical Consequences
- The US shale gas ' revolution ' has led to speculation that Washington could gradually abandon the Middle East. Although we believe that such suggestions are misplaced, we examine the consequences of a US shift in military priorities.
Long-Term Political Outlook
Tough Challenges In The 2010s
- The 2010s look set to be another challenging decade for the US, mainly due to the aftermath of the 2007-2009 recession and several unresolved foreign policy issues. Meanwhile, two of the main trends in US politics will be the rise of the south-western states and
Hispanic-Americans as key forces.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth To Improve In 2013
- In light of the fiscal agreement reached at the beginning of 2013, we have revised up our US real GDP growth forecast to 2.3% from 2.1% for the year. Residential construction will continue to be a bright spot in the economy, while there are upside risks to corporate investment later in 2013 now that there is more clarity over the fiscal debate in Washington.
TABLE: GDP BY EXPENDITURE, REAL GROWTH %
TABLE: HIGHLIGHTS OF AMERICAN TAXPAYER RELIEF ACT OF 2012
Fiscal Policy
Fiscal Cliff Deal: Long-Term Issues Remain Unresolved
- The resolution of the fiscal cliff challenge will stave off recession in 2013, but it leaves much to be desired in terms of long-term deficit reduction. Under the provision of the deal, signed into law by President Barack Obama on January 2, taxes will rise on higher-earning individuals and households, while 'sequestration' - the reduction of US$110bn in annual expenditure on key budget items such as defence - will be postponed until March 2013. Though the sequester issue remains outstanding, the overall effect of the fiscal cliff deal is to increase federal revenue by around US$600bn over the coming decade. In the table below, we have listed the provisions of the fiscal cliff deal, including the impact on capital gains taxes, the expiry of the payroll tax cuts, and other provisions.
TABLE: BUDGETARY EFFECTS OF FISCAL CLIFF DEAL VS SCENARIO UNDER WHICH FISCAL CLIFF TOOK FULL EFFECT
TABLE: FISCAL POLICY
Monetary Policy
'Evans Rule' Underlines Easy Policy
- The Federal Reserve is set to continue expanding its balance sheet into 2014. We do not expect Fed funds rate hikes until 2016.
TABLE: MONETARY POLICY
Economic Activity II
Key Sectors To Drive Growth Over The Forecast Period
- We forecast that the US economy will expand at an average annual rate of about 2.4% over the coming years, which is below historical trend. While GDP is typically forecast using the expenditure approach, we have decided to take a sectors approach to compliment our expenditure forecasts and identify some of the key sectors that will help drive growth over the next five to 10 years. In this vein, we highlight oil and gas, banking, real estate, manufacturing and healthcare sectors. One common theme is that several of the sectors mentioned will help underpin consumer strength, which, at about 70% of GDP remains the most important segment of the economy.
Chapter 3: 10-Year Forecast
The US Economy To 2022
Down But Not Out
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Full Table of Contents is available at:
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