United States

The US bounced back rapidly from the pandemic-induced downturn and has been easily outpacing developed market peers since then. In 2023, the US economy remained remarkably resilient to the Fed-induced sharp rise in interest rates, thanks to the unwinding of consumer savings built up during the pandemic, loose fiscal policy and generally solid corporate and household balance sheets. Meanwhile, inflation and wage growth have cooled down amid the ending of global supply-chain disruptions, an easing of labor market conditions and the Fed’s high credibility in anchoring medium-term inflation expectations close to targeted inflation.

However, as interest rates remain elevated for longer, we expect US growth to slow down substantially in 2024. Many SMEs in particular are reporting lower sales and earnings, while the corporate margin rate has fallen substantially over the past few quarters. Corporate capex plans in the manufacturing sector are low. In the housing market, prices have started to recover amid low supply of new homes. Along with very elevated mortgage rates, this is straining affordability even further. Existing home sales are vey weak while starts have started to fizzled out. An increase in corporate bankruptcies is expected, though they should remain at a moderate level of around 20,000 in 2023 amid relatively solid corporate balance sheets. Against this backdrop, the US is expected to retain one of the highest rates of medium-term GDP growth potential amongst large developed markets.

The business environment in the US is very accommodating, ranking 6th in the World Bank’s 2020 Ease of Doing Business report. The hallmarks of the economy include strict enforcement of contracts, the ease of resolving insolvencies, the rule of law in general and the relatively easy access to credit.

Politics is becoming increasingly divisive, both between and within political parties. Repeated disagreements over the debt ceiling and the budget have increased economic and political uncertainties. Some of President Biden’s flagship legislation could be removed or watered down if a Republican wins the presidential election in November 2024. However, measures introduced to counter China’s growing influence – such as export restrictions on high-end chips and chipmaking equipment – are unlikely to be phased out by a Republican amid political consensus to rein in China’s access to western technology. A Trump 2.0 presidency could have far-reaching consequences for both the US and the rest of the world. Trump’s declarations so far point to more customs tariffs being levied – including against western allies – and the seizing of some of China’s strategic assets on US soil. On the domestic side, a Trump presidency would probably mean lower taxes and the return of the deregulatory agenda.