US Economy

By: EW World Economy Team   Date: 2 June 2013

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The United States of America (US or USA) is the largest and most important economy in the world. In 2012, the US economy was responsible for 18.87 percent of the world’s total GDP (PPP) or US$15.684 trillion.

Yet despite leading the world’s economy for more than a hundred years, The US economy is now facing its greatest ever challenge since World War II. This challenge has been a result of both domestic and international factors.

Domestically, the US economy’s frailties were cruelly exposed during the 2008 financial crisis. The US economy has found it harder to recover from the 2008 financial crisis, believed to be the worst financial crisis since the Great Depression, as compared to previous downturns. Consumer confidence within the country is at all time low, perpetuating the slow economic growth since 2008.

US Economy

On the international front, it is increasingly likely that the US will lose its status as the world’s largest economy. According to the latest IMF forecasts, China is expected to overtake the US by 2016. This has come as a major surprise for the global community – previous forecasts had predicted China overtaking the US by 2035 at best.

US Economic Forecast

As a result of China’s rapid economic growth, coupled with the increasing power of emerging markets, the US share of the world’s total GDP (PPP) is expected to fall to 17.681 percent by 2018. For the next five years, the US is expected to experience slow and modest economic growth as it continues its recovery from the 2008 financial crisis.

US GDP (PPP) for example will grow annually between 4.75 percent and 5.35 percent from 2013 to 2018. By 2015, this number should reach US$21.102 trillion.

Similarly, US GDP per capita will also grow by 2.66 to 3.50 percent annually. In 2012, the US GDP per capita was the 7th highest in the world at US$49,922.11. The US GDP per capita for 2018 is expected to be US$63,676.10.

On the other hand, unemployment rates are unlikely to see a return to pre-financial crisis levels during the same period. Although gradual improvement is expected from 2013 to 2018, the forecasted unemployment rate for 2015 – 5.601 percent, will still be significantly higher than 2007’s unemployment rate – 4.617 percent.

On the back of the 2008 financial crisis, the US faced deflation for the first time since World War II – at -0.324 percent (average consumer price change) in 2009. In 2010, inflation returned at 1.64 percent and the subsequent two years saw inflation grow higher to 3.141 percent and 2.076 percent in 2011 and 2012 respectively.

In 2013, the inflation rate (average consumer price change) is expected to fall to 1.828 percent. However, inflation is expected to see increase slightly every year and reach 2.263 percent in 2018. This will go someway into returning to pre-financial crisis levels where the average inflation rate between 2000 to 2008 was 2.89 percent.

Along with relatively low interest rates, the US economy has operated with a current account balance deficit since 1982. Currently, the US has the world’s largest current account deficit at –US$473.473 billion. This marked a significant decrease from 2006 (–US$800.621 billion), but is still approximately four times higher than that of the UK’s, which is the second highest in the world.

The US current account balance deficit is expected to grow US$739.12 billion by 2018, which indicates more net capital inflow, but greater debt risk.

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