United States: Risk Assessment
Country Risk Rating
Business Climate Rating
- Flexible labor market
- Full employment is one of the Federal Reserve’s objectives
- Dollar’s predominant role in the global economy
- 70% of public debt held by residents
- Highly attractive: leader in research & innovation; huge market
- Favorable company taxation
- Increasing energy autonomy
- Low labor market participation
- Households not geographically flexible
- High household debt (129% of gross disposable income)
- Polarised political landscape
- Decrease in fertility rate
- Outdated infrastructure
- Increasing inequalities
Growth hampered by business difficulties
Growth will slow sharply in 2020 due to the downturn in business investment which, after being boosted in 2018 and early 2019 by President Donald Trump’s tax reforms (corporate tax cut from 35% to 21%), began to decline in mid-2019 amid trade tensions, aggravated by the unpredictability of political decisions. In addition, US companies have been forced to trim their import margins, to avoid passing on the entire increase in input costs resulting from customs duties imposed on most Chinese imports and a multitude of products (including steel and aluminum), but also their export margins, to remain competitive despite retaliation measures by trading partners. In this challenging context for companies, the Federal Reserve, which was forced to lower its key interest rate three times by the end of 2019, is expected to pursue its easing policy in 2020. Improved financing conditions will make it possible to support household consumption, which will in turn boost growth thanks to a persistently low unemployment rate (3.6% in October 2019) and correspondingly brisk growth in real wages. Conversely, in the absence of any major new measures, public spending will contribute only marginally to growth in 2020, after expanding strongly for two years. In addition, the trade environment will remain weak, featuring muted growth among key partners and retaliatory protectionist measures by those same partners, and exports will grow slowly after a flat performance in 2019. Although also affected by protectionist measures, imports are expected to remain brisker, in line with household consumption. Foreign trade will therefore continue to weigh on growth.
The segments most exposed to trade tensions will continue to be in the manufacturing industry, which is facing both falling export orders and rising input costs, and agribusiness, which is the main target of Chinese trade retaliation measures. The economic situation is also difficult for the energy sector, which is heavily indebted due to investment requirements and facing weak profitability because of the dip in oil prices. Conversely, activity will remain solid in construction, thanks to low-interest rates.
Ever-present deficits in public and external accounts
In the absence of any major fiscal measures, the public deficit will remain very high in 2020. Once again, the main increases in spending will be concentrated in the military budget (+USD 23 billion, or 0.1% of GDP). At the same time, with revenues slackening in the context of slowing activity, the deficit may even widen. Public debt, which is among the highest in the world, will therefore continue its upward trajectory. In this regard, the government and Congress reached an agreement in July 2019 to raise the ceiling on public spending and debt, thus avoiding the prospect of a federal shutdown similar to the one in January 2019.
The current account will continue to show a large deficit in 2020. Substantial imports of consumer and capital goods engender a structural deficit in the goods balance (4.2% of GDP in 2018). Surpluses in the balance of services (1.2% of GDP) – thanks to tourism, research and development and financial services – and in income (0.6% of GDP), attributable to dividends from US investments abroad, are clearly insufficient to offset the goods balance. The resulting current account deficit will be mainly financed by FDI and portfolio investment. The net external asset position has been in deficit for three decades (49.5% of GDP at the end of June 2019). This deficit will continue to widen.
Uncertainty over the presidential election in a polarised landscape
In the lead-up to the presidential election in November 2020, the political landscape looks more polarised than ever. Democrats, who took over the House of Representatives (235 seats out of 435) in the 2018 mid-term elections, launched impeachment proceedings in September 2019 against President Trump, who is suspected of pressuring Ukraine to investigate Joe Biden, one of the Democratic presidential candidates in 2020. Although impeachment has very little chance of success, since it requires a two-thirds vote in the Senate, where the Republicans still have a majority (53 seats out of 100), it illustrates the divide between two sets of voters: in November 2019, only 11% of Republicans wanted President Trump impeached, compared to 81% of Democrats. The outcome of the Democratic primaries is highly uncertain. While polls conducted a year before the elections suggest that each one of the main Democratic candidates would beat President Trump, the situation could change radically in what may be a tumultuous election campaign.
Internationally, US trade and foreign policy will remain unpredictable. Despite the announcement of a partial trade agreement in December 2019, trade tensions with China are expected to continue, with most tariffs being maintained (19% on average in January 2020 versus 3% at the beginning of 2018). The United States may also open a new front in the trade war by taxing European car imports, after twice postponing its decision on this matter.