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United States: United States Economy Profile 2012

2012/04/05

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United States Economy Profile 2012

ECONOMIC GROWTH

We have raised our forecast for economic growth in 2011 to 2.7%, from 1.7% previously, in response to the new fiscal stimulus package announced by the US government and some more encouraging recent data. We had assumed that the Bush tax cuts would be rolled over, but the cuts to employee payroll taxes and the extension of unemployment benefits will boost spending power, particularly for lower- and middle-class consumers, who tend to have lower savings rates. The faster write-downs of business investment that will be allowed in 2011 should also encourage some firms to bring forward investment from 2012.

Despite the boost from fiscal stimulus, the US economy is still growing slowly for this stage of a recovery, when the spare capacity in the economy should allow an above-trend expansion. The core of the problem is the high indebtedness of the household sector. Around one-quarter of homeowners are trying to work their way out of negative equity, following the collapse in house prices. Many more are looking to reduce their debt to more normal levels. The housing market, which had showed signs of revival in late 2009, has weakened again following the expiry of temporary tax credits in April. The unusually large stock of unsold housing on the market suggests that a vigorous recovery in house prices is unlikely during the forecast period. This suggests that balance-sheet repair will have to come from a prolonged period of spending restraint. In this climate firms are reluctant to invest, even though their cost of borrowing is low. Structural weaknesses are likely to cause the economy to slow in 2012, as policy support is withdrawn.

INFLATION

Headline consumer price inflation was running at just 1.1% year on year in November, down from 1.2% the previous month. Core inflation edged up to 0.7%, from 0.6%, but is still very low by historical standards. The depressed state of aggregate demand suggests that there is little risk of a sudden acceleration in price inflation. According to the IMF, the US will record an output gap of almost 5% of GDP in 2010, which is comparable with Japan and higher than any other major economy. With the US economy operating so far below its potential, there is a risk of continued disinflation, and even deflation. The danger of deflation has, however, receded, owing to recent policy moves.
The expansion of the Fed’s QE programme and the federal government’s fiscal stimulus should both support domestic demand and rebuild some inflationary pressure. Nonetheless, we still expect inflation to remain subdued, at 1.2% in 2011 and 2% in 2012. In 2011-12 we believe that there is little prospect of an inflationary surge, although this may be a risk in the second half of the forecast period if the Fed fails to exit its exceptionally loose monetary policy stance in an orderly manner.

EXCHANGE RATES

The US dollar weakened in the third quarter of 2010 as investors’ concerns shifted from the euro zone debt crisis to the slowdown in the US, and as it became apparent that the Fed would be rolling out a second round of QE. But the dollar retains its role as a safe-haven c rrency, and as the crisis in the euro zone intensified, with Ireland requesting an EU/IMF bail-out in late November, the dollar has rebounded. We believe that continued concerns about the stability of the euro zone will support the dollar against the single currency in 2011 and the remainder of the forecast period. However, the dollar is likely to remain weak against many emerging-market currencies and the other two primary safe-haven currencies, the yen and the Swiss franc.

EXTERNAL SECTOR

The current-account deficit narrowed in 2009 as import volumes declined and lower oil prices reduced the value of imports. The deficit widened again in 2010 as US import demand recovered and higher average world oil prices pushed up the import bill. Weaker export growth, resulting from a slowdown in the global economy and a further rise in average oil prices, will cause the current-account deficit to widen again in 2011. The administration will struggle to achieve its goal of export-led growth over the remainder of the forecast period, and despite a recovery in external markets and the continued frugality of US households, the current-account deficit will remain wide in 2012-15.

 

  Country 2010 2015 Scale Units
GDP at constant prices United States 13390.07 15110.61 Billions United States Dollar
percent change in GDP at constant prices United States 3.10 2.39   Percent change
GDP at current prices United States 14799.56 18249.56 Billions United States Dollar
GDP at current prices in US dollars United States 14799.56 18249.56 Billions U.S. dollars
GDP deflator United States 110.53 120.77   Index
GDP per Capita at constant prices United States 43158.75 46444.32 Units United States Dollar
GDP per Capita at current prices United States 47701.81 56092.27 Units United States Dollar
GDP per Capita at current prices in US dollars United States 47701.81 56092.27 Units U.S. dollars
Output gap in percent of potential GDP United States -1.97 0.01   Percent of potential GDP
Investment as percent of GDP United States 15.74     Percent of GDP
GDP based on Purchasing Power Parity (PPP) valuation of country GDP United States 14799.56 18249.56 Billions Current international dollar
GDP based on Purchasing Power Parity (PPP) per capita GDP United States 47701.81 56092.27 Units Current international dollar
GDP based on Purchasing Power Parity (PPP) share of world total United States 20.15 18.28   Percent
Implied Purchasing Power Parity (PPP) conversion rate United States 1.00 1.00   National currency per current international dollar
Gross national savings in percent of GDP United States 12.19     Percent of GDP
Consumer Prices Index average United States 127.26 140.78   Index; 2000=100
Inflation average United States 2.14 2.15   Percent change
Consumer Prices Index end-of-period United States 126.20 139.57   Index; 2000=100
Inflation end-of-period United States 1.68 1.87   Percent change
Six-month London interbank offered rate (LIBOR) United States 0.50     Percent
Unemployment rate United States 9.41     Percent of total labor force
Employment United States 140.54   Millions Persons
Population United States 310.25 325.35 Millions Persons
Government Net Lending and Borrowing United States -1623.96 -1191.29 Billions United States Dollar
Government Net Lending and Borrowing in percent of GDP United States -10.97 -6.53   Percent of GDP
General government structural balance United States -1392.08 -1195.64 Billions United States Dollar
General government structural balance in percent of potential GDP United States -9.22 -6.55   Percent of potential GDP
General government net debt United States 9791.77 15606.94 Billions United States Dollar
General government net debt in percent of GDP United States 66.16 85.52   Percent of GDP
General government gross debt United States 13698.67 20013.78 Billions United States Dollar
General government gross debt in percent of GDP United States 92.56 109.67   Percent of GDP
GDP Fiscal Year Current Prices United States 14799.56   Billions United States Dollar
Current account balance in US dollars United States -487.23 -638.17 Billions U.S. dollars
Current account balance in percent of GDP United States -3.29 -3.50   Percent of GDP