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.

Experts

Ben Herzon, Ph.D.

Executive Director, Macroeconomic Advisers by IHS Markit

Ken Matheny, Ph.D.

Executive Director, Macroeconomic Advisers by IHS Markit

Joel Prakken, Ph.D.

Chief US Economist and co-head of US Economics, Macroeconomic Advisers by IHS Markit

Rebecca Mitchell

Economist II, IHS Markit

Nariman Behravesh, Ph.D.

Chief Economist, IHS Markit

Sara L. Johnson, CBE

Executive Director – Global Economics, IHS Markit

Chris Varvares, CBE

Vice President and co-head of US Economics, Macroeconomic Advisers by IHS Markit

Patrick Newport, Ph.D.

Executive Director - US Economics, IHS Markit

Kathleen Navin, CBE

Director, Macroeconomic Advisers by IHS Markit

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