Economic Views, United States February 2012

In stark contrast to developments in Europe, the US economy appears to be gathering momentum and 2011 ended with a string of encouraging economic news stories. However it could be severely impacted by the potential unravelling of the Eurozone and the lack of a credible medium-term fiscal plan.

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Headline unemployment figures continue to drop and consumer and business sentiment has improved. Meanwhile interest rates are set to remain low for another two years and these factors will support private sector demand growth in 2012.

However, intensification in the Eurozone debt crisis poses the greatest risk to the US recovery, particularly if the global banking system is affected. Also agreeing a credible plan to reduce the fiscal deficit remains an outstanding problem. With eyes firmly focussed on the presidential elections in November, it’s unlikely that any major reforms to deal with this will be seen before then.

Key opportunities for the US economy:

  • Recovering labour market
  • Improved consumer and business sentiment
  • Low interest rates over the medium-term

Key threats:

  • Financial contagion from the Eurozone debt crisis
  • Higher exchange rate and reduced demand from the Eurozone
  • Medium-term uncertainty around the fiscal deficit.