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United States (US) Economic Forecasts and Risk Ratings

US economic growth is slowing to trend, roughly 2% (fourth quarter over fourth quarter). As underlying demand growth ebbs, lower rates are needed to support even this pace. The Federal Reserve’s signaling of a pause helped the recovery in equities and lowered term yields.

Investor concerns over rising risks of a downturn after 2019, stoked by developments abroad, resulted in sharply worsening financial conditions in late 2018, despite prospects for solid trend-like US growth in 2019. Helped by a more dovish-sounding Fed, a recovery in financial conditions is now supporting GDP growth near trend.

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Medium- and Long-term Forecast

  • IHS Markit forecasts 2.0% GDP growth in 2019, followed by 2.1% growth in 2020 (fourth quarter over fourth quarter). Thereafter, a period of below-trend growth is assumed, balancing the risks between continued trend-like growth and a recession.
  • The Fed is now expected to implement one more federal funds rate hike and wind down its balance-sheet run-off, bringing the top of the funds range to 2.75%, near the longer-run nominal neutral rate.
  • The unemployment rate is forecast to decline to 3.5% by the second half of 2019 and core personal consumption expenditure inflation to rise to 2.2% by fourth quarter 2019.
  • We view the recent drop in broad equity markets as only partly related to fundamentals and look for an 18.5% gain in the S&P 500 this year (end-2019 over end-2018).
 
 
 

Country Risk Rating for the United States

  • In mid-term elections held in November 2018, Democrats took a majority in the House of Representatives, while Republicans extended their majority in the Senate. Given the congressional composition, the likelihood of policy gridlock will almost certainly increase. 
  • Although organized attack risks remain, radicalized Islamist and domestic groups and individuals pose a more imminent threat. Issue-driven protests, including around immigration, gun control, or reproductive rights, are common, with an increasing likelihood of demonstrations by individuals associated with right-wing extremist organizations.
  • We forecast 2.0% GDP growth (fourth quarter over fourth quarter) followed by 2.1% growth next year. After 2020, we assume a period of below-trend growth, balancing the risks between continued trend-like growth and a recession.
  • Long-term interest rates are 10 to 20 basis points lower, reflecting a recent update to our “Fed call”, with just one more rate hike penciled in for December.



A note on our risk ratings: IHS Markit derives country risk ratings for 206 countries, based on six separate ratings in each country: Political, economic, legal, tax, operational and security with 22 detailed sub-aggregate risks. These ratings allow you to quantify risk with greater specificity with a scoring system based on a 0.1-10 logarithmic scale. Seven risk bands, from low to extreme, allow you to compare and contrast risk between countries and regions.

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