United States Country Risk Rep

Q2 2022
www.fitchsolutions.com
Unit
United
ed S
Sta
tattes
Country Risk R
Report
eport
Includes 10-year forecasts to 2031
United States Country Risk Report | Q2 2022
Contents
Executive Summary...................................................................................................................................................................... 4
Key View ..................................................................................................................................................................................................................4
Risk Summary.........................................................................................................................................................................................................5
Economic SWOT ......................................................................................................................................................................................................6
Political SWOT .........................................................................................................................................................................................................7
Economic Outlook......................................................................................................................................................................... 8
US Growth Revised To 5.6% In 2021, But Above-Trend Growth To Persist In 2022 .......................................................................................8
GDP By Expenditure Outlook ............................................................................................................................................................................. 14
External Trade And Investment Outlook .............................................................................................................................16
Outlook On External Position............................................................................................................................................................................ 16
Monetary Policy Outlook...........................................................................................................................................................21
US Fed To Hike Twice In 2022 Amid Inflationary Pressures And Labour Market Improvement .............................................................. 21
Monetary Policy Framework .............................................................................................................................................................................. 24
Fiscal Policy And Public Debt Outlook..................................................................................................................................26
US Fiscal Deficit Will Narrow In 2022 But Stay Wide Over Medium Term .................................................................................................... 26
Structural Fiscal Position ................................................................................................................................................................................... 29
Currency Forecast .......................................................................................................................................................................32
Bullish USD, But Could Be A Story Of Two Halves .......................................................................................................................................... 32
10-Year Forecasts.........................................................................................................................................................................37
Lower Growth Equilibrium Will Prevail Beyond 2021 ..................................................................................................................................... 37
Political Outlook...........................................................................................................................................................................41
Democrats Likely To Lose House Majority In US Mid-Term Elections ......................................................................................................... 41
Long-Term Political Outlook ....................................................................................................................................................44
Q&A: The Future Of Trumpism Without Trump .............................................................................................................................................. 44
Polarisation, Changing Demographics And New Geopolitical Context Will Heighten Political Risk ....................................................... 50
Global Macro Outlook .................................................................................................................................................................56
Cross-Currents Testing Economic Normalisation.......................................................................................................................................... 56
Index Tables ...................................................................................................................................................................................62
Macroeconomic Forecasts........................................................................................................................................................66
© 20
2022
22 Fit
Fitch
ch Solutions Gr
Group
oup Limit
Limited.
ed. All rights rreserv
eserved.
ed.
All information, analysis, forecasts and data provided by Fitch Solutions Group Limited is for the exclusive use of subscribing persons or organisations (including those
using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced,
repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited.
All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Fitch
Solutions Group Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability
whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an
affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2022 Fitch
Solutions Group Limited.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
fitchsolutions.com 3
Executive Summary
Key View
Key View
• We still forecast US real GDP growth of 3.7% in 2022, as we expect a pickup in consumption and output as household fundamentals remain
strong and supply chain pressures ease. However, we recently revised down our US real GDP growth forecast for 2021 from 6.0% to 5.6%, after
a slower-than-anticipated real GDP expansion of 2.0% q-o-q annualised in Q321, due to supply chain constraints, particularly affecting motor
vehicles.
• We expect that the US will continue to outperform its developed market peers and reach its pre-pandemic growth trend by the end of 2022.
• Our base case scenario is for the US Federal Reserve (Fed) to raise interests twice for a total of 50bps in 2022 and another 50bps in 2023 given
still-elevated inflation, a more hawkish turn among policymakers and a strong labour market. This forecast is broadly in line with what financial
markets are pricing in, but it is slightly less hawkish than the Fed’s indication for three hikes in 2022.
• We maintain our forecast for the US fiscal deficit to come in at 5.4% of GDP in FY2022 (October 2021 - September 2022), representing a
significant narrowing from 12.0% in FY2021. Strong revenue growth from above-trend economic activity growth and declining expenditures
due to reduced pandemic support will drive the rapid narrowing of the government's deficit from historically wide levels.
• However, multi-year spending increases on infrastructure investments and social services initiatives will keep expenditures elevated over the
coming years relative to historic levels, underpinning an average deficit of 4.4% of GDP between FY2022-2026.
• Democrats are most likely to lose their House, and possibly Senate, majorities to Republicans in November's mid-term elections. In a period of
divided government from 2023, legislative gridlock will set in, brinkmanship over fiscal matters will be routine and the risk of a miscalculation
on the budget or debt will grow.
• We believe the US dollar will continue to drift higher in the coming months given a bullish technical outlook and a hawkish Fed, while bouts of
risk aversion would also support the US dollar. The strength of the US dollar could wane in 2022 mainly due to a less hawkish Fed relative to
market expectations.
MACROECONOMIC FORECASTS (UNITED STATES 2020-2023)

Indicator 2020 2021e 2022f 2023f
Real GDP growth, % y-o-y -3.5 5.6 3.7 2.1
Nominal GDP, USDbn 20,932.8 23,178.8 25,109.9 26,157.3
Consumer price inflation, % y-o-y, eop 1.4 7.0 2.8 1.9
Exchange rate USD/USD, eop 1.00 1.00 1.00 1.00
Budget balance, % of GDP -15.0 -12.0 -5.4 -4.1
Current account balance, % of GDP -3.1 -3.1 -2.6 -2.3
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions
Risk Summary
Economic Risk: Rebound Picking Up
The US has a Short-Term Economic Risk Index score of 74.6 out of 100. This reflects our belief that the economy is staging a robust rebound that
will see above-trend growth for several quarters. The rollout of Covid-19 vaccines, stimulus measures enacted in early 2021 by Joe Biden's
administration and the strengthening labour market are likely to drive consumption and investment over the coming quarters. That said, growth is
slowing as base effects fade and persistent supply chain issues impact production. Moreover, the deterioration of the government's fiscal accounts
lowers its score on the 'fiscal' sub-component of our index.
Political Risk: Mid-Term Elections Raise Policy Continuity Risks
We have revised down the US's score in our Short-Term Political Risk Index to 72.9 out of 100, from 73.5. On the positive side, unified control of the
federal executive and legislature under the Democratic party has allowed the administration to pursue core elements of its policy agenda, in
particular advancing major new spending initiatives. Overall, social stability risks have declined as unemployment has fallen rapidly and there have
been few major protests since the January 6 2021 attack on the Capitol. However, legislative deadlock is likely to set in over 2022 as the mid-terms
approach. Given our expectation the 2022 mid-term elections will see a return to divided government, we also expect deadlock to persist and
undermine policy continuity.
Economic SWOT
SWOT Analysis
Strengths • The world's largest economy, with a record of entrepreneurial dynamism, innovation, and high research and
development spending.
• The US dollar is the international reserve currency, and investors around the world readily purchase US debt.
Because of this, the US is uniquely able to finance large fiscal and current account deficits.
Weaknesses • A low savings rate and long-term structural budget imbalances leave the US partially reliant on external
capital inflows to finance its consumption.
• Intense partisanship creates policy uncertainty, given the potential for sharp policy reversals between
administrations, gridlock during periods of divided government and the increasing use of less durable
executive actions to advance policy goals.
Opportunities • President Joe Biden's administration will pursue more predictable, traditional policymaking than its
predecessor, supporting greater clarity regarding the medium-term policy outlook.
• Greater policy certainty following the ratification of US-Mexico-Canada Agreement could result in an uptick
in cross-border investment. The upside risk has accelerated as more companies want to move closer to their
home markets to improve supply chain risk management.
Threats • Elevated trade tensions between the US and China would significantly impact consumers via an uptick in
prices while also hurting US exporters.
• A significant rise in government debt, coupled with higher inflation and political volatility, could lead to
foreigners reducing their exposure to US debt, contributing to rising interest rates that would undermine
consumption and investment.
Political SWOT
SWOT Analysis
Strengths • The US is an undisputed superpower and occupies centre stage in most international diplomacy.
• A long-standing democracy with vigorous and open political debate, the US continues to attract large
numbers of immigrants committed to citizenship and self-advancement.
Weaknesses • Political debate between Republicans and Democrats as well as within each respective party has grown more
polarised and divisive.
• As today's superpower, the US attracts the enmity of a wide range of political groups opposed to the current
international status quo.
• Protectionist trade policies and a tougher foreign policy stance towards China are likely to lead to
heightened geopolitical tension between the world's two largest economies.
Opportunities • Unified control of government will support a more fluid policymaking environment between 2021 and 2022,
after a divided government led to frequent gridlock between 2019 and 2020.
• A bipartisan infrastructure investment package could bolster economic growth over the coming quarters
should a spending deal be enacted.
Threats • Former president Donald Trump's refusal to concede the 2020 election has fed the erosion of trust in
governing institutions among a portion of the electorate, stoking divisions that are likely to lead to ever
greater polarisation.
Economic Outlook
US Growth Revised To 5.6% In 2021, But Above-Trend Growth To Persist In 2022

Key View
• We have revised down our US real GDP growth estimate for 2021 from 6.0% to 5.6%, after a slower-than-anticipated real GDP expansion
of 2.0% q-o-q annualised in Q321, due to supply chain constraints, particularly affecting motor vehicles.
• We still forecast growth of 3.7% in 2022, as we expect a pickup in consumption and output as household fundamentals remain strong and
supply chain pressures ease.
• We expect that the US will continue to outperform its developed market peers and reach its pre-pandemic growth trend by the end of 2022.
We have revised down our US growth estimate from 6.0% to 5.6% in 2021 but left our 2022 growth forecast unchanged at 3.7%. US
real GDP expanded by 2.0% q-o-q annualised in Q321, slightly below Bloomberg consensus estimates of 2.6%. The disappointment in growth was
largely driven by supply chain challenges, which manifested in a sharp drop in consumption of durable goods such as cars due to lower production
volumes by major manufacturers. While supply chain challenges will remain in place over the coming months, there is evidence that they are
easing slightly. High frequency data also point to strong household fundamentals as well as a slight pickup in manufacturing activity. Moreover,
while we see the potential for some monetary and fiscal policy normalisation over the coming months, policy will remain broadly supportive over
the coming quarters.
Q321 Growth Slows Amid Supply Disruptions

US - Quarterly Real GDP By Expenditure, pp contribution to growth
Source: BEA, Fitch Solutions
The breakdown of the GDP print showed that private consumption added 1.1 percentage points (pp) to real GDP growth in Q321, which was a
significant reduction from the 7.4pp and 7.9pp contributions in the first two quarters of 2021, while private investment added 1.9pp in Q321,
marking a reversal from the 0.65pp drag in Q221. Government consumption also contributed to growth in the quarter, adding 0.14pp, marking a
turnaround from the 0.36pp drag in Q2. The drag from net exports increased from 0.18pp in Q2 to 1.14pp in Q3, as import growth outstripped
export growth and weighed on the external sector.
Private Consumption Took A Hit Because Of Car Sales

US - Private Consumption By Component, pp contribution, % (LHC) & Spending On Motor Vehicles, USDbn (RHC)
Source: Bloomberg, BEA, Fitch Solutions
Given the weak consumption print, we have revised down our estimate slightly for private consumption to grow by 8.0% in 2021,
down from 8.2% previously. The easing in private consumption’s contribution to growth was primarily the result of a 2.7pp drag in durable
goods, which pulled overall goods 2.3pp lower for the quarter. This can largely be traced back to weak consumption of motor vehicles as autos
production was halted at several plants due to shortages of needed microchips. Consumption of motor vehicles and parts contracted 53.9% q-o-q
annualised in Q321. Moreover, other durable goods sectors such as furnishings and household equipment (-10.3% q-o-q) and recreational goods
and vehicles (-7.2% q-o-q) also saw declines. While supply chain disruptions are likely to persist over the coming months, there are some signs that
they are easing. For example, automakers VW and Tesla have reported improving supplies of microchips, suggesting that durable goods
consumption will most likely pick up over the coming quarters. ISM manufacturing surveys indicate that while delivery times remain elevated, they
have improved slightly in recent months, a trend that we expect to continue after the seasonal holiday rush is over.
US Households Remain In Good Shape

US - Unemployment & Savings Rate, % (LHC), & Ratio Of Household Assets To Liabilities (RHC)
Services consumption added a respectable 3.4pp to GDP growth, which more than offset the decline in goods consumption. As the US economy
continues to reopen, services demand growth remains strong, a trend that we expect to continue. Transportation and recreational services
expanded 41.5% q-o-q annualised and 16.5% respectively, while food services and accommodation also saw robust growth of 12.4% q-o-q.
High frequency data ranging from the labour market to balance sheets point to a robust consumer picture going forward. While
personal expenditure growth slowed from the double-digit levels of April and May 2021, they expanded by a very respectable 7.0% y-o-y in August.
Household spending is being driven by falling unemployment (4.8% in September), a still-elevated savings rate (9.4% in August) and strong
household balance sheets. The ratio of household assets to liabilities in the US came in at 8.2x, its highest level in the 20 years for which we have
data. Lastly, wage growth remains robust, growing at an average of 4.2% y-o-y in Q321, which will also support spending going forward.
Important To Keep An Eye On Easing Consumer Sentiment

US - University Of Michigan Consumer Sentiment Index
Source: Bloomberg, Fitch Solutions
That said, two factors temper our optimism. First, there is the potential for new covid-19 outbreaks over the winter months to weigh on spending.
Second, consumer confidence could remain subdued and keep spending in check. After the University of Michigan's consumer sentiment index
recovered to a level of 88.0 in April, current and future expectations have declined sharply to the low 70s in October (see chart above).
Private Investment Rebounding

US - Private Investment By Component (LHC) & Fixed Investment By Component, pp (RHC)
We have raised our estimate for private investment slightly from 7.2% to 7.7% in 2021, given the strong reading in Q321. The bulk of
the 1.9pp growth contribution came from a sharp turnaround in inventories, which added 2.1pp to growth, in stark contrast to the drag of 2.6pp
and 1.3pp in the first two quarters of 2021. This shows that companies have been able to rebuild some of their inventories, a trend that has been
corroborated by purchasing managers' index (PMI) readings as well. There is more upside potential here, given that manufacturing inventories
remain depressed relative to pre-pandemic levels, according to the ISM PMI surveys. Moreover, intellectual property (IP) added another 0.6pp to
growth in the quarter.
Business Inventories Improving, But Customer Inventories Still Low

US - ISM Manufacturing PMI Inventories
In contrast to inventories and IP, fixed investment acted as a slight drag (-0.1pp) in Q321. This is the result of shortages in building materials and
labour, which are weighing on real estate investment despite fast-rising house prices. As the labour market normalises and supply chain issues
ease, we expect that investment will pick up. In recent months, the manufacturing PMI, which is correlated to non-residential investment, rose
slightly from 59.9 in August to 61.1 in September, which suggests additional strength in investment going forward.
Investment To Pick Up As Shortages Ease

US - ISM Manufacturing PMI, % reporting deliveries are slower (LHC) & Non-Residential Investment vs Manufacturing PMI (RHC)
We estimate that government consumption grew by 0.8% y-o-y in 2021, which marks a slight revision from our previous estimate
of 1.0%. In Q321, government consumption added 0.1pp to growth, driven by state and local spending, which added 0.5pp to growth. This was
predominantly the result of a 6.6% q-o-q annualised increase in government consumption rather than investment, which contracted by 6.5% q-o-
q over the same period. Going forward, we expect the federal government’s contribution to growth to ease substantially as fiscal stimulus tails off
further and could become a drag on growth.
Lastly, we expect that net exports will subtract 1.0pp from growth in 2021 (compared with our previous forecast of -0.7pp) as import
growth is outstripping export growth by a larger margin than we had originally expected. However, this demonstrates the strength of US
consumers and the relative outperformance of the US economy versus its trading partners.
Private Consumption To Drive Growth

US - Real GDP Growth, by component
e/f = Fitch Solutions estimate/forecast. Source: BEA, Fitch Solutions
2022 Growth To Slow But To Remain Above Trend
For 2022, we forecast growth of 3.7%, which means that the US economy will experience two years of above-trend growth, and on a
two-year average basis (4.7%) will still outperform other developed markets such as Germany (4.2%) and Japan (2.3%), although eurozone growth
on a two-year average basis will come in close (4.6%). As noted, we expect supply chain constraints to gradually ease globally, allowing an
expansion of goods production that will be met by pent-up demand from flush households. Few mobility restrictions are likely to be in place across
the country by early 2022, allowing nearly all businesses to normalise operations. Firms are also likely to build up inventories to create greater
resilience to future supply shocks while also expanding capacity to meet strong demand. The US federal government will also likely begin its major
new infrastructure investment spending plans, and a broader recovery in the US's trading partners will support export demand.
US Economy To Return To Trend By End-2022

US - Real GDP & Pre-Pandemic Trend, USDbn
That said, the US economy will broadly slow down as a combination of factors weigh on output growth. In particular, fiscal and monetary policy will
become less accommodative. We expect that the US Federal Reserve will start tapering its asset purchases in November 2021 and is increasingly
likely to hike interest rates by late 2022. While this should be a gradual process, it will start to see financing costs rise slightly. From a fiscal policy
perspective, although the fiscal deficit will remain wide (5.4% in 2022 vs 11.6% in 2021), it will narrow significantly, which could act as a drag,
particularly given the magnitude of the stimulus in 2021 and the related income support schemes which are expiring. Additionally, our growth
forecasts suggest that the US economy will reach its pre-Covid trend in output by the end of 2022. This suggests limits to growth as certain parts
of the economy brush up against capacity constraints, particularly as inflation will remain elevated compared to pre-pandemic levels.
ECONOMIC ACTIVITY TABLE

Indicator Date Latest Previous Month 3M
Unemployment, % Sep-21 4.8 5.2 5.9
Small Biz Hiring Sep-21 26.0 32.0 28.0
US Hourly Wage Growth, % Sep-21 4.6 4.0 3.7
ISM Composite PMI Sep-21 61.8 61.5 60.2
ISM PMI New Orders Sep-21 65.1 64.2 64.1
Retail Sales y-o-y, % Sep-21 13.9 15.4 18.9
Durable Goods y-o-y, % Sep-21 14.4 20.7 32.0
Durable Goods m-o-m, % Sep-21 -0.4 1.3 0.8
Personal Consumption y-o-y, % Aug-21 7.0 7.3 15.1
Personal Consumption m-o-m, % Aug-21 0.4 -0.5 -0.5
Personal Income y-o-y, % Aug-21 6.1 2.8 1.4
UoM Current Expectations Oct-21 71.4 72.8 81.2
UoM Future Expectations Oct-21 67.2 68.1 79.0
GDP By Expenditure Outlook

Domestic factors still dominate the outlook for the US, which is the world's largest economy. Private consumption represents the majority of GDP,
at approximately two-thirds of total national expenditure. Relative to other developed economies, the US has a relatively small public sector, with
government consumption and investment both at around 17% of total GDP. The US is among the world's leaders in technology and high-value
manufacturing, and innovation remains a key driver of growth.
GDP GROWTH FORECASTS (UNITED STATES 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Nominal GDP, USDbn 20,932.8 23,178.8 25,109.9 26,157.3 27,169.3 28,254.7
Real GDP growth, % y-o-y -3.5 5.6 3.7 2.1 2.0 2.0
GDP per capita, USD 63,240.6 69,623.8 74,998.4 77,691.9 80,253.7 83,004.4
GDP GROWTH FORECASTS (UNITED STATES 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Real GDP growth, % y-o-y 2.0 2.0 1.8 1.8 1.8 1.8
GDP per capita, USD 85,868.7 88,806.4 91,697.8 94,701.4 97,799.9 101,046.2
f = Fitch Solutions forecast. Source: BEA, Fitch Solutions
Private Consumption: Private consumption accounted for 67.6% of total GDP in 2020, remaining within the narrow range of 67-69% that it has
been in for more than a decade despite relatively large movements in other components of the economy associated with commodity price
fluctuations and the global recession of 2008-2009. We expect that private consumption will remain the principal engine of US demand in the
coming decade, slowly rising towards 70% of GDP.
PRIVATE CONSUMPTION FORECASTS (UNITED STATES 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Private final consumption, USDbn 14,147.4 15,997.3 17,422.0 18,125.9 18,848.9 19,620.0
Private final consumption, % of GDP 67.6 69.0 69.4 69.3 69.4 69.4
Private final consumption, real growth % y-o-y -3.9 8.0 3.7 2.1 2.0 2.0
PRIVATE CONSUMPTION FORECASTS (UNITED STATES 2026-2031)
Private final consumption, USDbn 20,432.7 21,279.0 22,138.7 23,033.0 23,963.5 24,931.6
Private final consumption, real growth % y-o-y 2.0 2.0 1.9 1.9 1.9 1.9
Government Consumption: The US's federalised system of government leaves considerable autonomy to local governments, with state and
municipal spending accounting for more than 60% of total government consumption and investment. We expect fiscal consolidation over the
coming years as Covid-19 will result in a sharp increase in public sector debt loads above 100% of GDP. This will constrain spending growth and
government consumption over the coming years, particularly at the state level.
GOVERNMENT CONSUMPTION FORECASTS (UNITED STATES 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Government final consumption, USDbn 3,830.2 4,042.3 4,257.1 4,364.1 4,471.4 4,585.9
Government final consumption, % of GDP 18.3 17.4 17.0 16.7 16.5 16.2
Government final consumption, real growth % y-o-y 1.1 0.8 0.3 0.6 0.5 0.5
GOVERNMENT CONSUMPTION FORECASTS (UNITED STATES 2026-2031)
Government final consumption, USDbn 4,705.6 4,828.4 4,949.6 5,073.7 5,201.0 5,331.4
Gross Fixed Capital Formation: Real private investment will grow more slowly on average than what we previously thought given the collapse
in capex during the Covid-19 pandemic. Beyond the rebound of 2021, we forecast growth of 3.1% on average over the next decade. Corporate tax
reforms under the Donald Trump administration incentivised domestic investment in 2017-2018, but rising uncertainty over trade protectionism
and the recent pandemic suggest more subdued growth rates in the near future, although public sector infrastructure investments are likely to
support capex in aggregate.
FIXED INVESTMENT FORECASTS (UNITED STATES 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Fixed capital formation, USDbn 3,677.3 4,019.9 4,304.6 4,500.2 4,704.7 4,918.6
Fixed capital formation, % of GDP 17.6 17.3 17.1 17.2 17.3 17.4
Fixed capital formation, real growth % y-o-y -1.8 7.7 5.5 3.0 3.0 3.0
FIXED INVESTMENT FORECASTS (UNITED STATES 2026-2031)
Fixed capital formation, USDbn 5,142.1 5,375.8 5,592.9 5,818.7 6,053.6 6,298.0
Fixed capital formation, real growth % y-o-y 3.0 3.0 2.5 2.5 2.5 2.5
Net Exports: The external sector has been a net drag on overall real GDP growth since 2014, and we project a continued drag from net exports
over the coming decade, although the drag will diminish. The US becoming a net energy products exporter in 2019, and a smaller trade deficit with
China as a result of the trade deal will see the drag from net exports lighten over the coming years. Excluding the contraction in 2020, we expect
average real growth of around 3.0% for exports and imports over the coming decade, in line with our expectation for the US consumer to remain a
focal point of the global economy.
NET EXPORTS FORECASTS (UNITED STATES 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Net exports of goods and services, USDbn -645.2 -761.7 -739.1 -694.1 -712.8 -722.5
Net exports of goods and services, % of GDP -3.1 -3.3 -2.9 -2.7 -2.6 -2.6
Net exports of goods and services, real growth % y-o-y 0.9 19.1 -0.8 1.5 1.4 1.4
NET EXPORTS FORECASTS (UNITED STATES 2026-2031)
Net exports of goods and services, USDbn -740.0 -768.7 -797.5 -823.0 -852.5 -868.5
Net exports of goods and services, % of GDP -2.5 -2.5 -2.5 -2.5 -2.5 -2.4
Net exports of goods and services, real growth % y-o-y 1.4 1.4 2.4 2.4 2.4 2.4
External Trade And Investment Outlook
Outlook On External Position

The US's net international investment position will remain deeply negative over the coming years, partly due to continued strong demand for US
portfolio assets such as Treasury bonds. The manufacturing sector continues to dominate foreign direct investment flows. The current account
deficit will persist, dominated by goods trade.
Net International Investment Position (NIIP): The US's NIIP is deeply negative. According to the Bureau of Economic Analysis (BEA), the US's
NIIP widened to USD15.4trn as of Q221, from USD11.0trn in Q419. This reflected an increase in US foreign liabilities as investors piled into safe US
assets amid the market turmoil caused by Covid-19.
US NIIP Reflects Its Appeal To Global Investors

US - Net International Investment Position, USDbn
Note: 2021 data as of Q221. Source: BEA, Fitch Solutions
The net overall position was -66.7% of estimated GDP as of Q221, compared with just -8.9% of GDP in Q407. By far the largest contributor to this
decline is a massive increase in US portfolio assets held by foreign entities. This is largely due to strong foreign demand for US Treasury bonds and
notes amid stagnant global growth and rising policy uncertainty in the years after the global financial crisis. Fiscal stimulus measures will further
bolster debt issuance. The NIIP will also be negatively affected by the strength of the US dollar, which reduces the market value of assets held
abroad and supports the value of dollar-denominated liabilities held by foreigners.
Manufacturing Dominates Among Defined Industries

US - FDI By Industry, % of total (2019)
The status of the US dollar as the most important reserve and vehicle currency, coupled with the strong reputation of the US Federal Reserve (Fed),
will keep foreign demand for US assets robust and, by extension, the NIIP deep in the red. However, these same dynamics substantially mitigate
the ordinarily deleterious effects of a negative NIIP. A shock to the global economy typically results in greater demand for US financial assets,
particularly 'risk-free' US government debt instruments, as evidenced by the roiling of financial markets in August 2015, January 2016 and in March
2020 that drove US Treasury yields lower amid safe-haven demand.
External Debt Leveling Off

US - Total External Debt
e/f = Fitch Solutions estimate/forecast. Source: World Bank QEDS, Fitch Solutions
Despite running a large net negative international position, the economy has historically run a large surplus in net investment income. This
suggests that the US receives a higher return on its foreign investments than external investors receive on their US assets. The US current account
deficit is a sign that foreigners have confidence in the future of the US economy and are, therefore, willing to invest in the US. If this is the case,
then they are trading off security for high returns. US government securities owned by foreigners, which pay low interest rates, contrast with US
equity and debt holdings overseas, which tend to pay out at higher rates. Overall, for these reasons, the large net negative NIIP position may
overstate the external risks faced by the US.
In terms of direct investment, we expect that foreign interest in the US will remain solid. Although a relatively strong dollar will make US
investments more costly for foreign firms, reforms to the tax regime and a reduction in industrial regulations will also make the US more attractive.
These dynamics, coupled with the strong productivity advantage the US manufacturing base enjoys, will maintain the goods producing segment
as the prime beneficiary of inbound foreign direct investment (FDI).
Deficit Widened Amid Consumption-Led Import Surge In 2020

US - Current Account Balance
Foreign investment in the US has been relatively diversified, but the BEA estimates that around one-third of all FDI stock (based on historical cost)
is in manufacturing sectors. The country specialises in capital- and research-intensive manufacturing processes, with particularly large investments
in chemical processing, the manufacture of transport equipment, energy and computers and electronics. The US has long been able to maintain a
comparative advantage in these sectors through its well-educated workforce, leading research centres, robust intellectual property protections
and broadly predictable regulatory environment. US market share in high-value manufacturing is likely to diminish over the long term as emerging
markets (most notably China) seek to move up the value chain. However, trade protection measures put in place by the administration under
former president Donald Trump could hinder China's ascension into advanced manufacturing.
External Debt: Owing to the uptick in government spending, coupled with the Fed's aggressive monetary easing cycle, both enacted as a
response to the global financial crisis of 2008/2009, total debt has risen substantially in the subsequent years, with substantial amounts of US
bonds purchased from overseas. Nevertheless, lower interest rates and strong foreign demand for US instruments have kept servicing costs low.
The fact that even foreign debt is virtually always denominated in the US's local currency further bolsters the country's creditworthiness.
Balance Of Payments: The current account is dominated by trade, including a significant deficit in goods trade. Energy products represent a
large but declining share of US imports - less than 10.0% of the total in 2019, from 15.8% in 2014 - and the US is now exporting more and more
energy products. US producers remained relatively resilient during the period of collapsing oil price prices, and we forecast that the volume of
domestic production will continue to outpace consumer demand growth, leading to a net decrease in demand for foreign oil over a multi-year
time frame. This will help cap import growth.
US - TOP GOODS IMPORTS IN 2020

By Market % Of Total Imports By Category % Of Total Imports
China 19.0 Machinery and mechanical appliances 15.0
Mexico 13.7 Electrical machinery and equipment 14.3
Canada 11.5 Automotive/Vehicles other than rail 10.6
Japan 5.1 Pharmaceutical products 5.8
Germany 4.9 Mineral fuels 5.4
Note: Includes markets and special administrative regions. Source: Trade Map, Fitch Solutions
US - TOP GOODS EXPORTS IN 2020

By Market % Of Total Exports By Category % Of Total Exports
Canada 17.9 Machinery and mechanical appliances 12.8
Mexico 14.8 Electrical machinery 11.4
China 8.7 Mineral fuels 10.6
Japan 4.5 Vehicles 7.4
UK 4.1 Optical equipment 5.8
Note: Includes markets and special administrative regions. Source: Trade Map, Fitch Solutions
CAPITAL & FINANCIAL ACCOUNT BALANCE (UNITED STATES 2016-2020)

Indicator 2016 2017 2018 2019 2020
Capital account, USDbn -6.6 12.4 -4.2 -6.2 -6.0
Financial account, USDbn -363.6 -334.1 -419.7 -395.5 -743.6
Capital and financial account, % of GDP -2.0 -1.6 -2.1 -1.9 -3.6
Net FDI inflows per capita, USD -540.5 118.1 -1,261.9 -495.8 -178.7
Net portfolio investment, USDbn 267.5 1,360.2 638.3 226.6 1,110.2
Net other Investment, USDbn -4.0 -173.4 -23.7 -65.3 -280.3
A relatively strong currency will dampen some demand for exports. Key US goods exports include agricultural products (particularly corn and
wheat), machinery, aircraft and aircraft engines, automobiles, and pharmaceuticals and medical equipment. It also has an extensive services
export sector, notably very large tourism and financial services markets.
CURRENT ACCOUNT BALANCE FORECASTS (UNITED STATES 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Balance of trade in goods, USDbn -915.6 -993.2 -1,000.9 -1,036.0 -1,076.4 -1,112.2
Balance of trade in goods, % of GDP -4.4 -4.3 -4.0 -4.0 -4.0 -3.9
Balance of trade in services, USDbn 233.9 231.5 261.8 342.0 363.7 389.6
Balance of trade in services, % of GDP 1.1 1.0 1.0 1.3 1.3 1.4
Primary income balance, USDbn 181.6 189.0 242.8 252.2 269.4 289.1
Primary income balance, % of GDP 0.9 0.8 1.0 1.0 1.0 1.0
Secondary income balance, USDbn -147.1 -150.9 -158.0 -165.8 -174.9 -185.3
Secondary income balance, % of GDP -0.7 -0.7 -0.6 -0.6 -0.6 -0.7
Current account balance, USDbn -647.2 -723.5 -654.3 -607.6 -618.2 -618.8
Current account balance, % of GDP -3.1 -3.1 -2.6 -2.3 -2.3 -2.2
CURRENT ACCOUNT BALANCE FORECASTS (UNITED STATES 2026-2031)

Balance of trade in goods, USDbn -1,156.2 -1,207.4 -1,259.2 -1,308.0 -1,364.2 -1,417.3
Balance of trade in goods, % of GDP -3.9 -4.0 -4.0 -4.0 -4.0 -4.0
Balance of trade in services, USDbn 416.2 438.7 461.7 485.1 511.8 548.8
Balance of trade in services, % of GDP 1.4 1.4 1.5 1.5 1.5 1.5
Primary income balance, USDbn 309.0 331.2 348.3 366.3 386.9 417.6
Primary income balance, % of GDP 1.1 1.1 1.1 1.1 1.1 1.2
Secondary income balance, USDbn -195.6 -206.2 -217.6 -229.5 -240.9 -252.7
Secondary income balance, % of GDP -0.7 -0.7 -0.7 -0.7 -0.7 -0.7
Monetary Policy Outlook
US Fed To Hike Twice In 2022 Amid Inflationary Pressures And Labour Market
Improvement
Key View
• We expect the Fed to raise interests twice for a total of 50bps in 2022 and another 50bps in 2023 given still-elevated inflation, a more hawkish
Fed and a strong labour market.
• This forecast is broadly in line with what financial markets are pricing in, but it is slightly less hawkish than the Fed’s indication for three hikes in
2022.
We at Fitch Solutions expect the US Federal Reserve (Fed) to raise the federal funds target rate by 50 basis points (bps) in 2022 and 50bps in 2023,
up from 25bps in both years previously. Our revision reflects three key developments: inflation has continued to surprise to the upside,
unemployment has fallen faster than expected and the Fed has grown significantly more hawkish. On December 15 2021, the Fed announced that
it would double the pace at which it is tapering off its asset purchases, reducing its purchases by USD30.0bn per month (from USD15.0bn). This
should see it complete the process by March 2022, clearing the way for rate hikes to begin soon after.
Inflation To Remain Above Target In 2022

US - Consumer Price Inflation, % y-o-y
Source: BLS, Fitch Solutions
We expect that inflation will decelerate in 2022 but remain above the Fed's 2.0% target. Against expectation, inflation has continued to
push higher as price increases spread across a broad array of goods and services. In November, inflation reached 6.8% y-o-y, a multi-decade high,
and as a result we now anticipate inflation to stand at 7.0% at end-2021, from 5.2% previously. We still expect price pressures to ease over the
coming months: supply shortages are easing, with evidence that the production of goods such as semi-conductors is now above pre-pandemic
levels; shipping costs appear to have peaked; and our Oil & Gas team expects crude oil prices to remain below the highs of early Q421, with risks to
the downside after a slump in late November. That said, with price adjustments continuing to work their way across the economy, it will take
several months for these easing pressures to be reflected in a slower pace of inflation. We now see inflation at 2.8% y-o-y at end-2022, from 2.0%
previously.
Unemployment To Touch Pre-Pandemic Lows

US - Unemployment Rate, %
Source: BLS, Fitch Solutions
At the same time, we expect that unemployment will fall towards its pre-pandemic lows of 3.5%, reducing the Fed's willingness to
tolerate higher inflation. Under Chairman Jerome Powell, the Fed has placed significantly more emphasis on achieving its full employment
mandate and stating a willingness to tolerate periods of higher inflation to achieve it. With the vast majority of businesses resuming normal
operations, the fall in unemployment has far exceeded our prior expectations and is showing signs of reaching pre-pandemic employment levels.
In November, unemployment fell to 4.2%, and our above-trend growth forecast of 3.7% in 2022 implies that unemployment could fall to 3.5% at
end-2022, matching its end-2019 pre-pandemic low. In its most recent communication, and Powell's remarks following it, the Fed's assessment of
the labour market has grown notably more constructive, reflecting lower unemployment, higher participation rates and wage gains.
US FED MEDIAN ECONOMIC PROJECTIONS
Variable Month 2021 2022 2023 2024 Long Term
December 5.5 4.0 2.2 2.0 1.8

Change in real GDP
September 5.9 3.8 2.5 2.0 1.8
December 4.3 3.5 3.5 3.5 4.0

Unemployment
September 4.8 3.8 3.5 3.5 4.0
December 5.3 2.6 2.3 2.1 2.0

PCE inflation
September 4.2 2.2 2.2 2.1 2.0
December 0.1 0.9 1.6 2.1 2.5

Fed funds rate
September 0.1 0.3 1.0 1.8 2.5
Source: US Federal Reserve
Our forecasts are broadly in line with the Fed's projections, but we are slightly less hawkish in terms of our interest rate expectations for 2022.
Projections released alongside its December 2021 decision show the Fed has revised up its growth and inflation forecasts for 2022 while revising
down its unemployment forecast (see table above). The vast majority of Federal Open Market Committee members now anticipate 75bps of rate
increases in 2022. Taken together, the forecasts show that policymakers believe the economy is rapidly normalising and that continued monetary
stimulus would risk exacerbating inflationary pressures. The Fed's decision to accelerate the pace of its tapering also suggests that it is eager to act
in order to ensure inflation expectations remain anchored over the medium term. In that regard, the Fed is joining a majority of other developed
market central banks in tightening policy.
Although we believe that the Fed made a significantly hawkish shift, we expect that it will ultimately hike by less than it is currently indicating for
two reasons. First, we believe that the Fed might be ‘over-signalling’ in an effort to help keep inflation expectations anchored given the currently
high inflation readings, which have not peaked yet. Second, in 2022, we anticipate a slowdown in growth, risks of new infections, a rise in political
risk ahead of the US midterms and greater financial market volatility to constrain the Fed’s ability to push ahead with three rate hikes in such a
short period of time.
Markets Are Pricing In Aggressive Hikes

US - Fed Funds Futures Rate, %
We note that our forecasts are in line with consensus in 2022 but somewhat below consensus in 2023 and 2024 (we see two hikes in each of
these years). Markets have priced in about two interest rate hikes in 2022, and then about another three hikes in 2023 (see chart above), which we
believe is an overcorrection. We do not believe that the current rise in inflation reflects a permanent uptick in prices pressures. By H222, inflation
will be in a clear downtrend, and we expect that it will fall to 2.0% in early 2023. Medium-term inflation expectations are similarly anchored. By
2023, we also expect that growth will be returning to a slower trend. With inflation contained, growth slowing and elevated debt levels in the
economy, we believe the market is overestimating the magnitude of the hiking cycle by the Fed.
Upside Risks To Our Forecasts
Given that inflation has remained stickier to the upside, due to both demand and supply-side factors, we believe that the risks to our interest rate
projections lie to the upside at present. In the event that inflation does not come down as we forecast, we would anticipate a more aggressive
tightening cycle than we currently expect, with the potential for three interest rate hikes in 2022 and another three to four hikes in 2023.
Monetary Policy Framework

Structural Factors Of Inflation: To inform its monetary policy decisions, the Federal Open Market Committee takes a broad view of inflation,
using both core and non-core CPI measures as well as core and non-core personal consumption expenditure. Less formally, the US Federal
Reserve (Fed) also considers other high-frequency data that impact consumer inflation, including housing prices, commodity prices and the
strength of the US dollar. The Fed has a strong track record of keeping consumer inflation in check, with notable exceptions stemming from large
supply shocks (such as during the oil crisis of the 1970s).
Inflation Will Average Just Over 2.0% Over The Long Term
US - Consumer Price Index, % y-o-y
e/f = Fitch Solutions estimate/forecast. Source: BLS, Fitch Solutions
Other systemically important asset prices, such as those of equities or housing, have come under scrutiny by policymakers in recent years as they
have sought to avoid repeating the mistakes of the past when overly loose monetary policy may have contributed to the propagation of
unsustainable asset bubbles (including the housing crisis which began in 2006). While there has been some discussion of formalising such scrutiny
by incorporating it into the remit of the Fed, to date this has not resulted in an official change in policy.
Breakdown Of Inflation Basket: The Fed uses both the core and non-core readings of two separate consumer inflation prints, the CPI and the
PCE, to make its policy decisions. The CPI and PCE inflation measures tend to track one another, but weightings across the two indicators differ,
with the PCE generally less volatile. The PCE is adjusted much more frequently, with its formula changing quarterly to account for changing
consumption patterns (a chained approach versus the CPI fixed basket approach') and incorporates a larger scope of goods and services. At the
beginning of 2012, the Fed announced that PCE growth of 2.0% was the 'most consistent over the longer run with the Federal Reserve's statutory
mandate'. Nevertheless, policymakers also monitor the CPI closely, and the CPI is still much more widely reported in the US media and benefits
from a much longer historical record.
Rising Rents Play More Prominent Role In CPI Than PCE

US - CPI (Inner Ring) & PCE (Outer Ring) Price Basket Weightings, %
Source: BEA, BLS, Fitch Solutions
The US periodically adjusts the weights assigned to various components of the CPI basket (typically once every two years), but the end-2019
weights give 'housing' a weight of 42.1% of the total, by far the most important category in determining headline CPI inflation. This includes the
sub-category of 'shelter' (reflecting rent, rent equivalence and housing insurance) as well as household furnishing and utility costs. We anticipate
relatively modest increases in the cost of housing, which should help to keep a lid on inflation in the months ahead. Transport and food and
beverages are the next heaviest-weighted components, with 15.0% and 15.3% of the total basket respectively.
Inflation Credibility: The Fed has a strong record of maintaining price stability, and until 2021 inflation has not experienced a sustained break
above 4.0% in more than a quarter of a century. A prolonged period of near-zero interest rates has kept policymakers on high alert for the prospect
of a return to higher price pressures, which have been exacerbated over the course of 2021 by persistent supply shortages affecting numerous
industries. Nonetheless, inflation expectations are contained, as inflation has tended to disappoint to the downside in recent years.
Central Bank Targets And Operations: The Fed has a dual mandate to not only maintain price stability, currently defined as averaging 2.0% y-o-
y, but also to support full employment. As a result, anticipating central bank action generally requires close scrutiny of both inflation and the labour
market. The Fed's toolkit has expanded since the global financial crisis and the Covid-19 pandemic and unorthodox policies are now much more
common and will remain in place over the coming years. We expect interest rates to remain near the zero bound for several years as the Fed will be
reluctant to hike interest rates aggressively at a time when public debt levels are high and in the absence of strong inflationary pressures.
MONETARY POLICY FORECASTS (UNITED STATES 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Consumer price inflation, % y-o-y, eop 1.4 7.0 2.8 1.9 2.0 2.1
M2, USDbn 19,071.7 16,326.2 17,686.4 18,424.1 19,137.0 19,901.4
M2, % y-o-y 24.4 -14.4 8.3 4.2 3.9 4.0
Central bank policy rate, % eop 0.00 0.00 0.50 1.00 1.50 2.00
e/f = Fitch Solutions estimate/forecast. Source: US Federal Reserve, Fitch Solutions
MONETARY POLICY FORECASTS (UNITED STATES 2026-2031)
Consumer price inflation, % y-o-y, eop 2.1 2.1 2.1 2.1 2.1 2.1
M2, USDbn 20,700.3 21,524.1 22,344.2 23,199.3 24,085.6 25,016.6
M2, % y-o-y 4.0 4.0 3.8 3.8 3.8 3.9
f = Fitch Solutions forecast. Source: US Federal Reserve, Fitch Solutions
Fiscal Policy And Public Debt Outlook
US Fiscal Deficit Will Narrow In 2022 But Stay Wide Over Medium Term
Key View
• We maintain our forecast for the US fiscal deficit to come in at 5.4% of GDP in FY2022 (October 2021 - September 2022), representing a
significant narrowing from 12.0% in FY2021.
• Strong revenue growth from above-trend economic activity growth and declining expenditures due to reduced pandemic support will drive
the rapid narrowing of the government's deficit from historically wide levels.
• However, multi-year spending increases on infrastructure investments and social services initiatives will keep expenditures elevated over the
coming years relative to historic levels, underpinning an average deficit of 4.4% of GDP between FY2022-2026.
We expect the US fiscal deficit will narrow significantly in FY2022, to 5.4% of GDP from 12.0% in FY2021. The federal government's
fiscal outturn in the final months of FY2021 was largely in line with expectation: revenues grew rapidly alongside the US's strong rebound, resulting
in annual growth of 18.3%; though expenditure growth rose 4.1%, outpacing our estimate of 1.9% on an end-year surge of spending. As a result,
the overall deficit of 12.0% was slightly wider than our 11.6% estimate.
Deficit Will Narrow In FY2022 As Pandemic Effects Fade

US - Budget Balance
f = Fitch Solutions forecast. Source: Congressional Budget Office, Fitch Solutions
Over the coming months, we expect revenue growth will remain robust, while expenditures revert towards pre-pandemic levels,
resulting in a rapid narrowing of the deficit. While the pace of the US economic rebound is slowing due to unfavourable base effects and
supply chain constraints, we expect growth will remain above-trend (at 3.7% in 2022). Consumers remain flush from stimulus spending and will
continue to release pent-up demand as mobility restrictions are eased, while firms will boost production to meet demand, particularly as supply
chain constraints ease. Robust economic activity will drive tax receipts, which will see some additional support from relatively high inflation over
the near term.
Rebounding Revenues Shrink Budget Deficit

US - Monthly Budget Balance, 12m rolling sum
Source: CBO, Fitch Solutions
On the expenditure side, spending on social transfers is likely to normalise from elevated levels and result in a substantial
reduction in government spending. Notably, while expenditures grew in nominal terms in FY2021, relative to GDP expenditures fell from a
multi-decade high of 31.3% of GDP in FY2020 to 29.4% in FY2021. In FY2022, we anticipate expenditures at 22.4% of GDP, closer to 20.4%
averaged in FY2015-19. The labour market has rebounded far more rapidly than anticipated. We estimate the unemployment rate at 4.2% at
end-2021 and expect it will fall to match its pre-pandemic low of 3.5% by end-2022. This will bring down the cost of unemployment benefits,
particularly after the federal government's enhanced unemployment benefits expired in 2021. Additionally, the expanded child tax credit expired in
December 2021 and has not been renewed, despite many observers' expectations that its broad popularity would lead to its continuation.
However, we expect expenditure levels will remain elevated relative to pre-pandemic norms over the medium term, following the
approval of a major new infrastructure investment initiative and the anticipated approval of a multi-year spending package. The infrastructure
package passed in November 2021 includes USD550.0bn in new spending spread out over eight years. A separate budget package is set to
provide multi-year funding for Democratic priorities including child care, education and social services initiatives, as well as climate change
mitigation efforts. The budget appears likely to total USD1.5-2.1trn in gross costs, but possibly less. As of early January 2022, the package is held up
in the Senate, where Democratic Senators Joe Manchin and Kyrsten Sinema are seeking to reduce its gross costs. At Fitch Solutions, we assume a
version of the bill will pass within the coming weeks, although risks are increasingly towards a smaller package that could prompt us to revise down
in our medium-term spending forecasts.
Debt Level To Stabilise At Just Over 100% of GDP

US - Total Government Debt, % of GDP
e/f = Fitch Solutions estimate/forecast. Source: Congressional Budget Office, Fitch Solutions
As a result, we expect the deficit will average 4.4% of GDP over the coming five years (FY2022-26), against a pre-pandemic average
of 3.5% (FY2015-19). Over recent years, the US's political dynamics have increasingly favoured sustained deficit spending. After several years of
bipartisan interest in deficit reduction efforts following the Global Financial Crisis, both major parties' political incentives have shifted. Under former
president Donald Trump, Republicans enacted broad tax cuts that notably reduced federal intakes and widened the deficit. Under a period of
divided government following the 2018 midterms, compromise on fiscal matters meant Republicans securing tax reductions and increases on
defense spending, while Democrats secured modest raises in social spending.
The outbreak of Covid-19 brought about a temporary bipartisan consensus on the need for historic stimulus spending to the pandemic, though in
recent months some Republicans have begun raising deficit concerns. Over the near term, we expect this will largely result in brinkmanship over
fiscal legislation, which is already visible in the ongoing fight over raising the debt ceiling and Democrats' reliance on the budget reconciliation
process (which avoids the filibuster) to pass their spending package. Should we see a divided government following the November mid-term
elections, we expect similar dynamics to re-emerge and favour compromises that keep the deficit wide for the foreseeable future.
Structural Fiscal Position

Key View
• Federal government spending will remain elevated as a percentage of GDP over the coming years, even after stimulus measures enacted in
response to Covid-19 pass, due to demographic factors and a lack of political will to rein in outlays.
• Government revenue as a percentage of GDP will remain off recent highs, partly due to the passage of the 2017 Tax Cuts and Jobs Act.
• Government debt will rise to over 110% of GDP over the coming decade.
Structural Fiscal Position
Spending Structure: Federal government expenditure as a percentage of GDP will decline but remain elevated relative to pre-Covid levels
through the end of our forecast period to 2030. Even after stimulus measures enacted in response to Covid-19 pass, spending will resume a
modest structural rise due to demographic factors, which will push up social expenditure over time, combined with a lack of political will to make
reforms. Spending in the US is heavily tilted towards 'mandatory expenditure', which includes Social Security, various health programmes
(including Medicare health coverage for seniors, and Medicaid for low-income families and individuals) and other obligations which limit
expenditure flexibility on a year-to-year basis. Taken together, mandatory spending and interest payments account for more than two-thirds of all
US federal spending.
Mandatory And Stimulus Spending Will Keep Expenditures Above Pre-Covid Levels
US - Government Spending & Revenue (2013-2031)
f = Fitch Solutions forecast. Source: Congressional Budget Office, Fitch Solutions
The political challenges associated with reducing these outlays, typically referred to as 'entitlement reform', suggest that this breakdown is unlikely
to significantly change within our 10-year forecast time horizon. The Republican Party is typically more open to the idea of entitlement reform, but
there is little political appetite for it. The more left-leaning Democratic Party has pushed back on any reductions in social spending, with some of
the most prominent leaders advocating for an expansion of the welfare state. On the whole, we believe that most lawmakers (and US citizens) are
satisfied with maintaining the status quo, and any entitlement reforms are likely to be relatively modest. For example, we may see a very
incremental increase in the age at which citizens are entitled to Social Security or a modest means test for determining payments in the coming
years.
Fiscal Deterioration Due To Covid-19

US - Gross Debt & Fiscal Balance (2013-2031)
e/f = Fitch Solutions estimate/forecast. Source: Congressional Budget Office, Fitch Solutions
As a result, significant future shifts in US federal spending will be down to changes in non-mandatory, or discretionary, spending, which is almost
equally divided between defence and non-defence spending. However, neither is likely to fall considerably to offset the rise in mandatory
spending given strong political incentives to maintain most major spending programmes.
MAIN REVENUE AND EXPENDITURE CATEGORIES (2019)

Main Areas Of Expenditure % Of Total Main Sources Of Revenue % Of Total
Social Security 23.4 Individual income taxes 49.6
Major healthcare programmes (net) 25.3 Payroll taxes 35.9
Defence 15.2 Corporate income taxes 6.7
Interest payments 7.9 Excise taxes 2.9
Other 19.5 Customs duties 2
Note: Data for 2019 used due to idiosyncratic profile of 2020 spending. Source: Congressional Budget Office, Fitch Solutions
Revenue Structure: After rising to a 16-year high of just below 18.0% of GDP in 2015, the 2017 Tax Cuts And Jobs Act enacted broad tax rate
reductions. Subsequently, federal government revenue averaged 16.2% in 2018-2020. We anticipate revenues will rise modestly as a share of GDP
given expected tax increases under Joe Biden's administration. From a structural perspective, income and corporate taxes account for more than
half of all revenue, with payroll taxes (which are specifically designated to pay for Social Security and Medicare) comprising another third of the
total.
Debt: Given wide deficits that are likely to persist over the coming decade, the federal debt level is forecast to rise to 111.8% of GDP by 2031.
Given extremely low borrowing costs, total federal debt costs are likely to remain manageable.
FISCAL AND PUBLIC DEBT FORECASTS (UNITED STATES 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Total revenue, USDbn 3,420.0 4,046.0 4,268.7 4,427.5 4,643.7 4,800.9
Total revenue, USD, % y-o-y -1.2 18.3 5.5 3.7 4.9 3.4
Total expenditure, USDbn 6,551.9 6,818.2 5,624.6 5,493.0 5,624.0 6,074.8
Total expenditure, USD, % y-o-y 47.4 4.1 -17.5 -2.3 2.4 8.0
Budget balance, USDbn -3,131.9 -2,772.2 -1,355.9 -1,065.5 -980.4 -1,273.9
Budget balance, % of GDP -15.0 -12.0 -5.4 -4.1 -3.6 -4.5
Total government debt, USDbn 21,019.0 24,056.8 25,554.4 26,736.2 27,825.5 29,233.9
Total government debt, % of GDP 100.4 103.8 101.8 102.2 102.4 103.5
e/f = Fitch Solutions estimate/forecast. Source: CBO, Fitch Solutions
FISCAL AND PUBLIC DEBT FORECASTS (UNITED STATES 2026-2031)
Total revenue, USDbn 4,988.1 5,187.6 5,375.5 5,582.4 5,798.9 6,025.7
Total revenue, USD, % y-o-y 3.9 4.0 3.6 3.8 3.9 3.9
Total expenditure, USDbn 6,315.2 6,595.7 6,888.7 7,204.7 7,517.2 7,925.7
Total expenditure, USD, % y-o-y 4.0 4.4 4.4 4.6 4.3 5.4
Budget balance, USDbn -1,327.1 -1,408.1 -1,513.2 -1,622.4 -1,718.4 -1,899.9
Total government debt, USDbn 30,700.2 32,254.7 33,923.4 35,710.8 37,602.6 39,691.9
Total government debt, % of GDP 104.5 105.6 106.9 108.4 110.0 111.8
f = Fitch Solutions forecast. Source: CBO, Fitch Solutions
Currency Forecast
Bullish USD, But Could Be A Story Of Two Halves

Key View
• We at Fitch Solutions have turned bullish the USD as technical and fundamental factors point to a stronger dollar over the coming quarters.
• A bullish technical break above a key level of resistance, combined with a strong economic outlook, stickier inflation and a sharp rise in inflation
expectations, points to a stronger greenback.
• The move higher in the USD will most likely be gradual given current valuations and is consistent with a period of broad global growth and
general risk appetite. This means that EM currencies should not come under too much pressure, although there may be pockets of weakness.
• We also see the potential for a year of two halves for 2022, whereby we see USD strength in the first half of the year or so but then a slightly
weaker dollar towards the end as inflation expectations and rate hikes decline and as investors look for carry opportunities in high yielding EMs.
In September, we highlighted that the US Dollar Index (DXY) was getting closer to an inflection point and that a technical break above resistance
was looking more likely. We have now turned bullish the USD as the dollar broke above resistance, confirming the bullish technical
picture, and as we believe that several fundamental factors will remain supportive of the currency over the coming months. That
said, we believe that it will be a year of two halves whereby the USD will remain bid over the near term but will then soften towards the end of 2022
as inflation and interest rate expectations ease. From a technical perspective, the DXY broke above the technical level of resistance we had
identified at 95.0, and this points to a continuation of the uptrend that has been in place since June, which has seen the DXY appreciate by just
over 5.0% since then.
Dollar Index Breaking Above Resistance

US - Dollar Index
In addition to the higher technical break, we believe that there are several fundamental drivers that will support the greenback over the coming
months. First, a more hawkish US Federal Reserve (Fed) will bolster the greenback. In November, the Federal Open Market Committee announced
the tapering of its asset purchases by USD15bn per month and indicated that it could hike in the second half of 2022. Indeed, given still-strong
growth (we expect above-trend growth of 3.7% in 2022) and sticky inflation (6.2% y-o-y in October), the market is pricing in that the Fed will hike
about twice in 2022 and three more times in 2023. This is more hawkish than our forecasts for one hike in 2022 and one in 2023, although we
note upside risks to this view.
Market Has Seen A Hawkish Shift In Recent Months

US - Implied Policy Rate Curve, %
Second, investor positioning remains net long the USD and continues to head higher. While at current levels net longs could be nearing a plateau,
it is not yet at an extreme level that might suggest a sharp reversal in the USD, and thus we could see the USD continue to remain supported.
Investor Positioning For USD Strength

US - Non-Commercial Net Speculative Positions & US Dollar Index
Source: CFTC, Bloomberg, Fitch Solutions
Third, since peaking in March 2021, the yield curve has been flattening, a trend we expect to last as expectations for interest rate hikes remain
elevated. The USD is often correlated with the yield curve. Indeed, as the 10-2 US Treasury yield spread declines (which typically happens in the
mid-to-later part of the economic cycle) this usually sees a slight strengthening of the DXY.
Yield Curve Flattening And Limits To Fiscal Spending Could Provide Support To USD
US - Bond Yield Spread, bps & DXY (LHC) & DXY & Fiscal Balance, % of GDP (RHC)
Fourth, while fiscal policy will remain quite loose, the fiscal deficit is narrowing more rapidly than we had expected, thus lending some support to
the USD (see right-hand side chart above). The recent negotiations in Congress suggest that moderate Democratic lawmakers will ultimately limit
the size of President Joe Biden’s ambitious spending plans, which will reduce the size of the fiscal deficit and ease concerns around the longer-
term debt profile of the US.
Move In The Dollar Mirrored In The Euro

US - Exchange Rate, USD/EUR monthly (LHC) & Exchange Rate, USD/EUR annually (RHC)
Bullish, But Not Getting Too Bullish Just Yet
Although we have now turned bullish the USD, we believe that it will be a gradual move higher rather than a surge in dollar strength. First, the DXY
is heavily weighted towards the euro. The recent technical break higher for the DXY has been mirrored by a sharp move lower in the euro but has
not been reflected in a similarly sharp move lower in major developed market (DM) peers or emerging market (EM) currencies - since November 9
2021, the GBP has returned -0.4% and the JPY -0.9% versus -2.2% for the euro. Therefore, part of the move in the DXY reflects euro weakness and
not overwhelming broad-based USD strength. From a technical perspective, the euro looks like it could head to multi-decade support at around
USD1.10/EUR over the near term.
Negative Real Yields And Slight Overvaluation To Cap Dollar Appreciation

US - Real Bond Yields TIPS, % (LHC) & REER Deviation From 10-Year Average, % (RHC)
Second, real interest rates and real yields in the US remain negative and, as a result, do not yet offer substantial carry appeal relative to DM peers or
EM currencies, several of which have already started hiking. Moreover, by our estimates, the USD is about 7-8% overvalued on a real effective
exchange rate basis relative to its 10-year average, which suggests that while the USD can head higher, it has limited room to do so.
EM FX Trading Broadly Sideways

MSCI EM Currency Index
Third, we do not expect broad and sustained weakness in EMs for several reasons. First, in the year to date, the MSCI EM Currency index has traded
largely sideways within a range of about +/- 3.0%, which shows relative stability. Second, while we expect certain currencies such as the Chinese
yuan to weaken slightly in 2022, we do not believe that it will mark the start of a broad-based weakening trend. Third, while we also expect broad
commodity prices to ease from current levels, which may exert some downside pressure on commodity-exporting currencies, the average
commodity prices in 2022 will remain elevated by historical standards, preventing sustained currency weakness. Fourth, as vaccination rates
improve, we believe that more and more EMs will be able to open up over the coming months, which should help the economic recovery to
broaden out. Lastly, we note that the majority of major EM currencies remain fairly valued or even quite undervalued relative to their 10-year
average, which should limit the pace of weakness.
A Year Of Two Halves For The USD?
We also see the potential for the USD to appreciate in H122 before depreciating slightly in H222. In the first half of the year, as growth remains
strong and above-target inflationary pressures persist, the market will maintain its hawkish bias for the Fed, which will most likely put upside
pressure on the greenback. However, in the second half the year, the USD could ease slightly. First, as inflation and growth ease, rates markets
might price in a slightly less hawkish path for interest rates. Second, as inflation eases, those EMs that will have hiked aggressively, such as Brazil
and Russia, could see inflation coming down, thus offering attractive carry opportunity in real terms for yield-hungry investors.
10-Year Forecasts
Lower Growth Equilibrium Will Prevail Beyond 2021

Key View
• We forecast growth in the US will average 1.9% in 2023-2031, a slowdown from the 2.3% in 2010-2019.
• Part of the slowdown is due to the effects of Covid-19, which will likely limit space for fiscal and monetary policy stimulus over a multi-year
outlook.
• An ageing population will present further challenges, slowing productivity growth and reducing fiscal flexibility.
• Policymaking could become increasingly challenging in an environment of rising income inequality as well as greater political polarisation.
• Nonetheless, a strong business environment, a well-educated population and the fact that the US dollar is likely to remain the world’s reserve
currency will all support long-term growth.
Although we believe the US will retain its global economic pre-eminence over the coming decade, we believe its potential growth
rate is lower than it has been over the past two decades. Whereas real GDP growth averaged 3.0% from 1978-2008 owing to strong
productivity and labour force growth, we believe that growth will average 2.4% over the next decade to 2030. Excluding the effects of Covid-19
from 2020-2021, growth over the long term will average 1.9%, still lower than historic rates.
Part of our expected slowdown reflects the lasting impacts of Covid-19. While we expect above-trend growth in 2022, our long-term
growth forecasts take into account more limited room for fiscal and monetary stimulus following aggressive easing in response to the global
pandemic. In response to the pandemic, the US Federal Reserve has lowered its benchmark policy rate to 0.0-0.25% and introduced additional
measures to support liquidity and ease financial conditions, though tightening is likely to begin in 2022.
Sizeable fiscal stimulus will see the government debt load rise rapidly; we forecast debt to remain above 100.0% of GDP through 2031, up from
78.4% in 2019. Even before Covid-19, fiscal rescue packages in response to the global financial crisis and the embracing of more expansionary
fiscal policy among leaders in both major political parties had begun to drive debt-to-GDP higher. This is likely to eventually necessitate higher
taxation or a paring back in spending, constraining long-term growth potential. Policymaking will be made more difficult given rising income
inequality and greater political polarisation, which could slow reform momentum. Another aspect to consider is the pace at which the labour
market will recover from the crisis; while we expect that it will improve dramatically in 2021, we forecast unemployment will trend toward 3.9%,
above the 3.5% recorded in 2019.
Demographic changes will also present challenges as an ageing population and a rising dependency ratio begin to impact labour-force
dynamics, productivity growth, consumer-spending patterns and fiscal expenditure. The proportion of Americans aged 65 years and above
rose from 13.0% in 2010 to an estimated 16.2% in 2019 and is set to hit 20.0% by the end of the decade. After bottoming at 49.5% in 2009, the
dependency ratio (measuring the percentage of the population under 15 or over 64) is set to hit 60.0% in 2029. On top of the impact of a
slowdown in new entrants to the labour force, this will have significant implications for consumers’ propensity to spend. Data from the US Bureau
of Labour Statistics suggest that income and spending tends to peak between the ages of 55 and 64, thereafter gradually tailing off, suggesting
overall weak household spending as the US population ages. While some sectors are likely to benefit, perhaps none more so than healthcare,
others such as the hospitality and entertainment industries may face greater headwinds. Mandatory spending on entitlement programmes such
as Social Security, Medicaid and Medicare will likely reduce policy flexibility for other discretionary outlays such as infrastructure and education.
Growth Will Converge Towards Trend

US - Real GDP Growth, % & Nominal GDP, USDbn (2020-2031)
Against this backdrop, several emerging market economies are going to outperform the US on a headline growth basis over the coming decade.
Nonetheless, we believe that compared with most other developed states, the US economy will still hold its own.
• The US has one of the world's best environments in which to conduct business.
• Though the US is increasingly dependent on foreign countries for imports, this is neither an unreasonable nor unsustainable situation given
the US's relative wealth and the comparative advantage of producing goods in foreign states. The US still has considerable comparative
advantages in services, intellectual property and creative industries, with significant centres of technological innovation (eg, Silicon Valley). Few
countries offer better environments for entrepreneurial activity. While difficult to quantify, these advantages are not acquired or taken away
easily and make the US economy unusually flexible (in contrast with Japan's difficulties over the past two decades). We believe that these
advantages will help the US economy grow over the forecast period. The US could see more high-tech production come back home
while continuing to reduce its dependence on foreign energy imports.
• The US's demographic outlook is more benign than that of most other developed states. Even with the retirement of the Baby
Boomer generation, the US compares favourably with states such as Japan and most Western European countries, where populations are
ageing faster, increasing the degree of pensioners' dependency on the working-age population and driving down productivity.
• The US dollar is likely to remain the global reserve currency. There are few viable alternatives: the currency union underpinning the euro faces
several structural challenges, the yen is suffering from structural domestic issues in Japan, and the Chinese yuan is not yet ready to take centre
stage due to capital controls and a low share of yuan trade.
Risks To Outlook
The US economy is in the midst of systemic changes, and these could have unforeseen consequences. The US economy has historically been
prone to surprises, both to the upside and to the downside. As with the relatively unexpected tech boom of the 1990s, we would not be surprised
to see the US come back strongly over the coming decade. Healthcare, alternative energy and infrastructure are among sectors being discussed
as possible drivers of another major growth boom. While the labour force is eventually poised to shrink due to demographic changes, labour
scarcity could trigger significant technological innovation. Alternatively, while not our core view, there is the potential that changing demographics
make massive reform to immigration policy more palatable, in turn offering tailwinds to spending and productivity.
Another scenario is that of a Japanese-style secular stagnation in which permanently low inflation expectations and interest rates leave
policymakers with limited room to support the economy during slowdowns and fiscal deficits rise as the government attempts to stimulate the
economy to no avail. The ballooning of public spending poses serious long-term risks to the business environment, particularly mandatory
spending that will drive long-term debt that risks crowding out private investment.
LONG-TERM MACROECONOMIC FORECASTS (UNITED STATES 2022-2031)

Indicator 2022f 2023f 2024f 2025f 2026f 2027f 2028f 2029f 2030f 2031f
Nominal GDP, USDbn 25,109.9 26,157.3 27,169.3 28,254.7 29,388.7 30,558.4 31,722.7 32,936.7 34,194.9 35,516.8
Real GDP growth, % y-o-y 3.7 2.1 2.0 2.0 2.0 2.0 1.8 1.8 1.8 1.8
Population, mn 334.81 336.68 338.54 340.40 342.25 344.10 345.95 347.80 349.64 351.49
GDP per capita, USD 74,998 77,691 80,253 83,004 85,868 88,806 91,697 94,701 97,799 101,046
Consumer price inflation, % y-o-y, ave 5.0 1.9 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1
Current account balance, % of GDP -2.6 -2.3 -2.3 -2.2 -2.1 -2.1 -2.1 -2.1 -2.1 -2.0
Exchange rate USD/USD, ave 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
f = Fitch Solutions forecast. Source: National sources, Fitch Solutions
DISCLAIMER
Our long-term macroeconomic forecasts are based on a variety of quantitative and qualitative factors. Our 10-year forecasts assume in most cases that growth eventually
converges to a long-term trend, with economic potential being determined by factors such as capital investment, demographics and productivity growth. Because quantitative
frameworks often fail to capture key dynamics behind long-term growth determinants, our forecasts also reflect analysts’ in-depth knowledge of subjective factors such as
institutional strength and political stability. We assess trends in the composition of the economy on a GDP by expenditure basis in order to determine the degree to which
private and government consumption, fixed investment and the export sector will drive growth in the future. Taken together, these factors feed into our projections for
exchange rates, external account balances and interest rates.
Source: Fitch Solutions
Political Outlook
Democrats Likely To Lose House Majority In US Mid-Term Elections

Key View
• We at Fitch Solutions still expect a multi-year spending package will pass the US Congress in the coming months, although we do not expect
other major legislation for the rest of the year.
• Democrats are most likely to lose their House of Representatives, and possibly Senate, majorities to Republicans in November's mid-term
elections.
• In a period of divided government, legislative gridlock will set in, brinkmanship over fiscal matters will be routine and the risk of a miscalculation
on the budget or debt will grow.
We at Fitch Solutions expect the US Congress will approve a multi-year budget bill in the initial months of 2022. As of early January
2022, the bill is held up in the Senate, where Democratic Senators Joe Manchin and Kyrsten Sinema are seeking to reduce its gross costs,
estimated at USD1.5-2.1trn. We assume a version of the bill will ultimately pass, though with reduced headline costs, as failure to pass the bill would
hurt Democrats' re-election campaigns. The budget is set to provide multi-year funding for priorities including child care, education and social
services initiatives, as well as climate change mitigation efforts.
That said, risks to this view are significant. We have previously highlighted the significant potential for failure, given Democrats' razor-thin majorities.
In particular, Manchin and Sinema have been vague about their demands for the budget bill throughout the process, leaving their ultimate interest
in securing a compromise with the rest of the Democratic caucus is uncertain. Neither is seeking re-election in this cycle and both viewed the
infrastructure package that passed in November 2021 as the key legislation of the current Congressional session.
Beyond the budget bill, we expect legislative gridlock for the rest of the year. There is some possibility Democrats will advance voting
rights legislation, particularly if Manchin and Sinema agree to support loosening filibuster rules to advance such legislation. Democrats view the
issue as existential, particularly as numerous states have passed laws granting greater partisan influence over election administration, and there is
support for some reforms from a handful of Republicans. However, Manchin and Sinema do not support revoking the filibuster entirely, which de
facto requires all legislation to secure a 60-vote supermajority (apart from budget measures advanced through the cumbersome and restricted
budget reconciliation process). As we have argued, there is virtually no issue on which there is sufficient bipartisan support to reach a
supermajority, particularly as Republicans' hopes of winning back a majority in the November midterms leaves little incentive to compromise with
Democrats. As a result, there is effectively no chance for Democrats to advance non-budgetary legislation, as has been the case in the year to date.
Our base case scenario is that Republicans will retake the majority in the House of Representatives and possibly the Senate in the
November mid-term election. All of the House and 34 Senate seats will be up for re-election, and two factors strongly suggest Republicans will
make a net gain of at least the five seats required to retake the House. First, the president's party historically loses seats in the midterm (see chart
below). This is generally because opposition voters are typically more motivated to vote in a non-presidential election than those who support the
sitting majority.
President's Party Historically Loses Seats In Mid-Term Elections

US - Change In House Seats For President's Party In Mid-Term Elections, number of seats (1934-2018)
Note: Negative number means President's party lost seats. Source: The American Presidency Project, UC Santa Barbara, Fitch Solutions
Second, President Joe Biden's approval rating has slumped amid perceptions of economic weakness (due to high inflation and service disruptions
from worker shortages) and the continuing toll of Covid-19. Because congressional elections are highly correlated with attitudes toward the
federal government, Biden's underwater approval will likely have downside implications for Democrats running in competitive districts. Reflecting
Democrats' expectations, as of early January, 25 House Democrats have announced their retirements, of which the nonpartisan Cook Political
Report estimates 11 are in potentially competitive districts, while 11 House Republicans have announced their retirements, none of which are
from competitive districts.
Biden's Net Negative Approval Will Have Down-Ballot Impacts

US - President Biden Approval Rating, %
Source: FiveThirtyEight, Fitch Solutions
That said, while we have previously highlighted the potential that the redrawing of Congressional district maps could favour Republicans,
nonpartisan analysis from the Cook Political Report has found that redistricting thus far not meaningfully altered the presumed partisan
distribution of seats. This suggests that the number of seats that change parties may not be large.
Under a divided government, we expect a significant erosion of the US's policy-making process, with no major legislation
advancing through the second half of Biden's term and regular brinkmanship over fiscal matters. The US already ranks among the
lowest-scoring developed markets in the ‘policy-making’ component of our Short-Term Political Risk Index, with a score of 70.0 out of 100, and
earned a score of 63.3 during the prior period of divided federal governance in 2019-20, when Democrats held the House and Republicans held
the Senate and Presidency. Should Republicans retake the majority in either the House or Senate, we expect they will pursue a strategy of
obstruction.
As a result, we have downwardly revised the US's score in our Short-Term Political Risk Index to 72.9 out of 100, from 73.5. The
movement in the US's score reflects a complex mix of factors. Overall, social stability risks have declined as unemployment has fallen rapidly and
there have been few major protests since the January 6 2021 attack on the Capitol. However, we have revised down the US's 'policy continuity'
score, as an anticipated period of divided government, and significant legal challenges to the executive's regulatory decisions, will undermine
policy certainty.
Policy-making Score Weakened By Frequent Gridlock

US - Short-Term Political Risk Index
Note: Scores out of 100; higher score = lower risk. Source: Fitch Solutions
Brinkmanship over fiscal matters will significantly raise risks of a miscalculation that generates significant economic downside.
The already routine risk of economically disruptive government shutdowns and delays in raising the federal debt ceiling will grow significantly. As of
early January 2022, Congress has only managed to raise the debt ceiling through short-term measures that setup repeated showdowns, with
Republicans frequently opposing efforts to raise the ceiling even as they publicly state their expectation that it will be raised. In a period of divided
government, Congressional Republicans will likely see the debt ceiling as leverage to extract major concessions from the Biden administration, in
high stakes negotiations that could easily spook markets or result in miscalculations.
Long-Term Political Outlook
Q&A: The Future Of Trumpism Without Trump

The storming of the US Congress on January 6 2021 in an attempt to overturn the results of the 2020 presidential election raises major questions
about the long-term direction of US politics. In this article, we at Fitch Solutions discuss what we consider to be the most pressing questions.
To What Extent Is Donald Trump A One-Off (ie, Once In A Lifetime) Political Figure In Modern US History?
It is impossible to determine whether or not another figure of comparable political profile to Donald Trump will emerge over the foreseeable future.
However, we believe that Trump's ascent to power was made possible by a number of long-term trends that are almost certain to remain in play
over the coming years and could allow a similar figure to emerge. Among these trends are the ideological and demographic polarisation of the
country's two principal political parties since the Civil Rights era of the 1960s, the development of gerrymandered electoral districts that
have reduced interparty competition for many positions of power, the increasingly prominent role of counter-majoritarian institutions (the Senate,
the Electoral College) that favour rural districts amid a demographic shift toward an increasingly diverse and urbanised population, and the rise of
highly partisan mass media and social media. These factors are likely to ensure that the increasingly intractable divisions between the two parties
persist over the coming years, while also guaranteeing that the predominantly rural, white core of the Republican party remains politically
influential despite shrinking as a share of the population.
Non-White Voters Account For Far Smaller Share Of Republican Votes

US - Non-White Voters, % of total per party affiliation
Source: Pew Research Center, Fitch Solutions
These factors are also likely to continue underpinning the elevation of leaders like Trump who reject the norms that have historically supported
consensus building, such as attempting to appeal to opposition voters. In part encouraged by conservative media, many conservative-leaning
voters have come to see political power as a zero-sum competition with an illegitimate opposition. This has led to a broad rejection of compromise
and an embrace of confrontational politics that extends beyond Trump. It is visible through tactics such as the regular use of the filibuster in the
Senate and the refusal to consider nominees from a president of the opposing party, and it is reflected in the broad decline in our assessment of
the US's policy-making process (see chart below).
Democrats More Likely Than Republicans To Favour Compromise

US - Survey Of US Adults (Jan 8-12, 2021), By Party Affiliation, %
Source: Pew Research Center, Fitch Solutions
What Role Will Trump Play After Leaving Office? Can Trump Stage A Political Comeback In 2024?
For the time being, we believe Trump will remain the effective leader of the Republican party. He will make regular appearances in conservative
media, allowing him to retain his influence over the party's direction. While some Republican leaders have distanced themselves from Trump, few
have publicly broken with him and he remains overwhelmingly popular among the party's core voters. Even after the January 6 attack on the
Capitol that led to five deaths and dozens of injuries, 139 Republican representatives and six Republican senators sustained an unprecedented
attempt to reject the results of the election that Trump lost. Those who have publicly broken with Trump, such as House Republican Conference
Chair Liz Cheney, have been subject to significant pushback by fellow Republican legislators.
Nearly Two-Thirds Of Republican House Caucus Voted To Reject Election Results

US - Vote To Accept Certified Results Of Presidential Election By Party
Note: Totals account for Republicans who vote to reject either Arizona or Pennsylvania results. Source: Local Media, Fitch Solutions
It is possible Trump could seek a comeback in 2024, but it is far too early to tell. At a national level, Trump is likely to be unviable as a candidate.
According to polling aggregator FiveThirtyEight, Trump never exceeded 50% approval during his presidency, and anti-Trump sentiment was a
key factor in the Republicans' loss of the House, Senate and presidency. Out of office and banned from major social media platforms, his influence
beyond conservative media will likely be limited. He also faces legal jeopardy from state-level investigations of his businesses that are beyond the
reach of federal authorities and could inhibit his ability to run for office again. Trump’s ability to pardon himself for potential wrongdoing while in
office is a legal grey area, and there is the chance that the Senate could vote to uphold his second impeachment, barring him from future office. It
is also too early to tell if he will be able to pass on his mantle to another like-minded candidate. His endorsement record in office has been mixed,
and his aversion to sharing the spotlight calls into doubt his ability to promote someone else in his place.
Trump Enters Post-Presidency More Unfavourable Than Ever

US - President Trump Approval Rating, %
Source: FiveThirtyEight, Fitch Solutions
How Will The Republican Party Evolve Over The Next Four Years? What Will Become Of ‘Trumpism’ Without Trump?
'Trumpism' is likely to remain the party's dominant mode as long as it remains an effective electoral strategy that appeals to the majority of the
party's voters. Prior to Trump's entry into politics in 2015, the Republican party had been attempting to expand its electoral base by softening its
approach on immigration and focusing on economic issues such as jobs and taxes. Trump found success by instead focusing on motivating the
party's base through cultural appeals, in doing so appealing to some formerly Democratic-leaning voters in the Midwest and previously disengaged
citizens. Although he lost the 2020 election, Trump received more votes in 2020 than 2016, pulling in more disengaged voters (voters that
traditionally had not voted in the previous elections) and making modest inroads with other demographic groups. Numerous Congressional
Republicans won office utilising the same strategy and will likely continue to pursue it in upcoming elections.
Trump Received More Votes In 2020 Than 2016 Despite Losing

US - General Election Total Votes, mn
Source: Local Media, Fitch Solutions
However, there is some evidence to suggest this strategy will grow less effective on the margins, potentially reducing Trump's influence. For one,
Republicans have lost control of the House, Senate and presidency as anti-Trump sentiment saw Democrats make inroads with moderate voters,
particularly educated, suburban professionals. Moreover, as the Georgia Senate run-offs suggest, a critical number of Trump voters appears less
likely to vote without Trump on the ballot. Some Republicans in competitive districts will almost certainly seek to distance themselves from Trump
and will likely find electoral success in doing so in upcoming elections.
Nonetheless, electoral setbacks and moderation in some districts may not fully diminish the influence of 'Trumpism'. The exodus of relative
moderates from the Republican party precedes Trump's rise, beginning in earnest with the rise of the Tea Party in 2009, and appears likely to
continue given the backlash against those who break with Trump. For example, moderate Senator Lisa Murkowski has suggested she may leave
the party to register as independent. This movement out of the party is not likely to be significant enough to result in a splintering of the
Republican party, particularly since many who left chose to retire. Instead, it will likely result in the party being dominated by more ideologically
rigid members, many of whom represent non-competitive districts and thus have little electoral incentive to moderate their positions.
Are We Likely To See A ‘Normalisation’ Of Political Violence?
Potentially. Social stability has broadly weakened in the US over the last several quarters, in part due to economic dislocations as a result of
Covid-19, and can be seen in the re-emergence of a broad protest movement against racial discrimination and protests against Covid-19
restrictions. The more concerning embrace of political violence by some Trump supporters is an extreme outgrowth of the view that political
power is a zero-sum competition with an illegitimate opposition, and it comes as some public figures, most prominently Trump, sow doubt over the
integrity of democratic institutions. The storming of the Capitol marked an escalation of a trend of political violence that has grown over several
years. Right-wing militia groups have proliferated, and in the past year, members of these groups stormed the capitals of Michigan and Oregon.
Credible threats of violence against individual lawmakers have also proliferated, including plots to kidnap Democratic politicians. Although political
assassinations have not been common in recent decades, the level of threats being reported by law enforcement agencies suggests an elevated
risk.
Following the attack on the Capitol, we downwardly revised the US' 'social stability' score in our Short-Term Political Risk Index to 57.5 out of 100,
from 60.0 previously. Although its score has since risen modestly, the US continues to earn the lowest score it has ever received in this component
of our index, and its overall score of 73.5 is among the lowest for a developed market.
Social Stability Has Deteriorated As Risk Of Unrest Rises

US - Short-Term Political Risk Index
Note: Scores out of 100. Source: Fitch Solutions
How Will Political Polarisation Affect US Institutions?
There is an elevated risk that polarisation will increasingly influence public perceptions of the legitimacy of key governing institutions, in particular
the judiciary and law enforcement. As we have noted previously, Republicans have prioritised filling federal court openings with conservative
justices who are sceptical of the government's authority to regulate commerce. This has allowed business interest groups and conservative state
governments to use judicial challenges to roll back regulations and reforms implemented by prior administrations. The confirmation of
conservative Amy Coney Barrett to the Supreme Court in 2020 has shifted the court's ideological balance and could set the court up to overturn
major legislation enacted by Democratic-led administrations. While Chief Justice John Roberts has on notable occasions sided with the court's
liberal minority to uphold popular legislation, such as the Affordable Care Act, a 6-3 conservative split in the court all but eliminates his ability to act
as a swing vote and could result in the court's decisions being perceived as increasingly partisan. Additionally, the failed security response to the
Capitol Hill riot and the arrest of off-duty police and retired military participants among the rioteers have highlighted concerns about partisanship
within law enforcement organisations.
The rising polarisation of the US's political environment and the risk of polarisation in its unelected institutions raise long-term risks to policy
continuity. We have revised down the US's score in our Long-Term Political Risk Index to 78.5 out of 100, from 82.5 previously, reflecting these
risks.
Longer-Term Risks To Policy Continuity As Polarisation Deepens

US - Long-Term Political Risk Index
Note: Scores out of 100. e = estimate. Source: Fitch Solutions
Does Polarisation Portend More Frequent Changes In The Presidency?
At this stage, it is still too early to determine. Trump is the third one-term president in recent decades, following Republican George H.W. Bush
(1989-1993) and Democrat Jimmy Carter (1977-1981). All three failed to get re-elected amid severe economic crisis. More commonly,
incumbency is a significant advantage and presidents serve two terms, with the presidency alternating between the Democratic and Republican
parties every eight years in recent cycles. President-elect Joe Biden’s age (78) suggests that he may not seek re-election in 2024, instead endorsing
incoming Vice-President Kamala Harris. If she were to win, then the pattern of one party holding the presidency for eight years would be
maintained. Much will depend on future economic and geopolitical crises faced by sitting presidents.
However, we see a possibility of the presidency changing parties more frequently as a result of polarisation. If this were to happen, we would
expect significant domestic, economic, and foreign policy shifts every four years, especially if the Republican party shifts further to the right and the
Democratic party shifts further to the left. Such a scenario would lead to greater uncertainty for businesses and US allies.
Polarisation, Changing Demographics And New Geopolitical Context Will Heighten

Political Risk
Key View
• The long-term political outlook for the US will be challenging, both at home and abroad.
• Significant obstacles to policymaking will remain, including elevated political polarisation, structurally weak economic growth by historical
standards and an increased mistrust of elected officials among the electorate.
• The US will also have to carefully adapt to a more multi-polar world order if it is to avoid conflict with rising powers.
The long-term political outlook for the US will be increasingly challenging due to persistent populism domestically and increasing geopolitical risks
abroad. Domestically, there are growing concerns about the benefits of free trade and widening economic inequality, as well as deep mistrust of
government, leaving the political field open for non-traditional candidates to assume power within US institutions at the state and federal level. A
prolonged economic recovery from the 2008-2009 financial crisis, set back by the Covid-19 pandemic, is feeding a political undercurrent of
nationalism and scepticism over the current international order. This underpins the wave of populism that swept former president Donald Trump
into office in 2016 and has breathed new life into the left wing of the Democratic Party.
The modest consolidation of the fiscal accounts amid the post-financial crisis recovery has reversed given the above-mentioned shift in politics
which favours larger deficits over the medium term. While we believe that after the pandemic passes the fiscal deficit will narrow, increasing
mandatory spending due to changing demographics and structurally slower growth in the years ahead will limit the extent of any fiscal austerity
measures.
In terms of foreign policy, the US will need to manage numerous geopolitical flash points ranging from North Korea and the South China Sea to
Eastern Europe and the Middle East. More broadly, it will need to manage the transition to a multi-polar world in which China is a near-peer
competitor and Russia remains powerful.
It will remain an open question whether the US political system will remain responsive enough to address long-term domestic challenges (such as
pre-existing budget issues, persistent underemployment and demographic changes) and global challenges (such as the rise of new 'great powers'
and climate change).
Challenges And Threats To Stability And Governance
Populism Versus Bureaucratic Inertia: Anti-establishment populism is likely to persist for the foreseeable future, reflecting widespread
dissatisfaction with 'politics as usual'. These sentiments partly explain why Donald Trump won the presidency in 2016 and why self-styled
'democratic socialist' Bernie Sanders performed better than expected in the Democratic Party candidate selection process that year and in the
2020 Democratic primary. One could argue that many white working-class Americans went to the polls to vote for Trump - and not necessarily for
the Republican Party - energised by his tough stance on free trade, immigration and clientelism that saw establishment politicians perceived as
supporting the interests of major multi-national corporations at the expense of the middle class. The Democrats are the party that traditionally
championed organised labour, mobilised support from women, African Americans, minorities, the LGBTQ community, young urbanites and
environmentalists. Arguably, the 2016 election highlighted the backlash of rural and de-industrialised areas (and disenchanted elements of the
working class) against the 'metropolitan elites'. That said, the immense desire for change is facing opposition from the bureaucratic inertia of the
American political system that over multiple decades has allowed for well-organised and well-funded interest groups to block legislation or shape
new initiatives for their own purposes.
Against this backdrop, we could see a shift in priorities - for example, we see scope for either party to put much greater emphasis on addressing
inequality, increasing government transparency and accountability, and working to champion further healthcare reforms. Democratic candidates
championed Medicare for All proposals in the lead-up to the 2018 medium-term elections. While Medicare for all does not appear likely in the
immediate future, the progressive wing of the party has arguably moved the Overton window, with many of the policies originally championed by
Sanders becoming much more popular within the party.
Partisan Divide Will Not Be Reconciled

US - Issues That Should Be A Priority For Congress By Political Party Affiliation, %
Note: Survey conducted January 9-14 2019. Source: Pew Research, Fitch Solutions
Benefits Of Free Trade In Doubt: The hollowing out of the industrial base in the Midwest, relatively stagnant wage growth and the
concentration of wealth in major metropolitan regions have spurred a backlash against the alleged benefits of free and open international trade.
This will lead policymakers to increasingly focus on short-term relief for economically beleaguered parts of the US in the form of trade protection
measures, potentially sustaining contentious trade relations with China in the long term.
This shift in US trade policy will also reduce the US's role in leading large multilateral trade agreements. Most significantly, the US formally withdrew
from the Trans-Pacific Partnership in favour of pursuing future bilateral agreements. Such a unilateralist approach to trade policy has opened the
door to the renegotiation of current free trade regimes, such as the North American Free Trade Agreement (now renamed the US-Mexico-Canada
Agreement) and the World Trade Organization, in a bid to improve US economic interests domestically.
The prospect of the US removing itself from driving the narrative on global trade policy could see it face trade barriers as other nations step in to fill
the void. If this were to occur, lawmakers would increasingly make a distinction between globalisation and free trade - the former would include a
policy platform of fair trade, updated policies on trade-adjustment assistance and renewed efforts for public-private collaboration to support
domestic industries.
Fiscal Responsibility Versus Deepening The Social Safety Net: We see the outbreak of Covid-19 as likely to prompt serious debate between
policymakers focused on paring back the size of the fiscal deficits and those that believe that see the outbreak and economic fallout as a signal
that the US government needs to strengthen the social safety net. In recent years, fiscal austerity had largely fallen out of favour among both
major parties, reflecting the rise of more populist sentiment on both the left and the right. However, with the country set to maintain historically
large budget deficits in 2021 as policymakers roll out additional stimulus to fight Covid-19, we may start to see the national conversation change
over the medium-to-long term. A burgeoning budget deficit will raise the debt load and could reduce fiscal flexibility in the face of future economic
downturns.
That said, there are likely to be some that advocate for stronger social protections in the wake of the epidemic, including stronger labour
protections, reforming student debt and even discussions over a universal basic income (UBI). UBI had already begun to enter the national
conversation, pushed forwards by US presidential hopeful Andrew Yang before he suspended his campaign, and the issue has only gained more
prominence given the shape that US stimulus has taken.
Changing Demographics: From a demographic perspective, an ageing population and growth among Hispanics - by far the most rapid among
the major ethnic groups in the US - will have a significant impact on policymaking in the years ahead. An ageing population and a rising
dependency ratio will pose significant risks to federal and state fiscal budgets. The US Government's mandatory spending commitments for Social
Security, Medicaid and Medicare will increasingly reduce policy flexibility for other discretionary outlays, such as infrastructure and education
programmes. The large number of older Americans who are eligible for Social Security benefits will drive the programme's costs from 4.9% of GDP
in 2016 to 6.0% of GDP over the next decade, according to recent Congressional Budget Office forecasts. This will filter down to a state level given
the high proportion of states with large unfunded pension liabilities. We foresee a rise in policymaking gridlock as tax increases, spending cuts, or
both, will be needed to close structural budget gaps. Greater immigration controls under the administration of former president Trump could also
weigh on long-term population dynamics and hence growth.
Long-Term Fiscal Drag Ahead

US - Population Breakdown By Age, % Share (2010-2050)
f = Fitch Solutions forecast. Source: US Census Bureau, Fitch Solutions
In recent election cycles, Hispanic voters have tended to vote for Democrats. It is unclear the extent to which this trend will be sustained, but over
time the changing composition of the electorate could pose a greater challenge to Republican candidates. Hispanic voters' primary concerns are
those of the wider electorate - namely economic opportunity and improving public education, among others - but their increasing electoral
strength also means that addressing immigration (specifically resolving the status of millions of undocumented workers from Mexico and Central
America and addressing the conditions of migrants detained at the Southern border) will demand greater attention from any candidate over the
long term, particularly in national elections.
Hispanic Political Influence Rising

US - Hispanic Population, % Share Of Total (2015)
Over a 10-year time frame, demographic change is likely to sharpen debates around identity politics. Former president Trump drew much of his
support from white Americans, who constitute a diminishing but majority proportion of the US population. Many accuse his anti-immigration
rhetoric of emboldening far-right groups, such as those who attacked the Capitol building in January 2021. Recent years have also seen growing
attention on the deaths of African-Americans by the police, which is viewed of evidence of widespread discrimination.
Climate Change: Climate change is likely to rise in importance if the US experiences more Hurricane Katrina-style natural disasters or severe
droughts in the more arid states. The arrival of Hurricane Harvey in the summer of 2017 alongside one of the worst wild fire seasons on record in
California that year underscored these risks. Former president Trump's apparent scepticism over climate change has sharpened the debate.
Gradually Changing Global Role
Following former president Trump's pursuit of a more unilateralist foreign policy, we expect that the Biden administration will return the US to a
more traditional multi-lateral approach to foreign policy. Nonetheless, the US's place in the world has shifted considerably. Overall, the following
factors will continue to shape US foreign policy:
• Unmatched Militarily On A Global Basis: The US military will remain virtually peerless over our 10-year forecast period in terms of the
sophistication, reach and scope of its armed forces. Much of this is a reflection of spending priorities, with the US spending more on defence
each year (around USD700bn) than the next several countries combined. Even with such large outlays, the US ranks only 10th in terms of
military spending as a percentage of GDP, leading us to believe that these spending levels are sustainable. The US has the third largest military
in terms of personnel, and the US Navy plans to maintain 11 aircraft carrier battle groups over the next decade, ensuring the capacity to project
force globally.
• Rising Powers Will Challenge The US Regionally: While no military will be able to challenge the US on a global scale, military
modernisation efforts are likely see the power imbalance between the US and certain countries narrow at the regional level. China, in particular,
is investing heavily in modernising its military and plans to field multiple aircraft carriers over the coming decade. Russia has also been
upgrading its armed forces. While neither country will displace the US on a global level, they are likely to grow increasingly formidable at the
regional level, potentially allowing their respective governments to check US priorities and reduce US influence. The fact that the US is
committed by treaty to the defence of allies in Asia and Europe means that Washington could get dragged into major conflicts over the coming
decade if China and Russia seek to overturn the status quo. Conflict could also start as a result of miscalculation.
• Strong Support For Focus At Home: After more than a decade of war in Afghanistan and Iraq, and amid growing doubts about the benefits
of international trade and rising terrorism abroad, large segments of the US public have grown weary of international involvement in global
affairs. There is broad support for maintaining a robust military capability, and once memories of the Afghanistan and Iraq wars begin to fade in
the 2020s, the US may regain an appetite for greater involvement in global affairs.
Wild Cards
There are a number of major wild cards for our long-term political outlook. We note that a new 9/11-scale terror attack (or series of smaller
attacks) in the US cannot be ruled out and would raise the importance of domestic security above virtually all other issues and lead to new and
harsher anti-terror measures, such as stricter surveillance, arbitrary detentions and special tribunals, all of which could endanger many of the
political rights and personal freedoms that are currently considered to be the norm in the US.
The US could become embroiled in a major international conflict with North Korea, China or Russia that substantially weakens its position on the
global stage and forces it into a much more isolationist position. Trump's withdrawal from the Iran Nuclear Deal raises the stakes with Iran,
particularly given that it was claimed that Iran was behind the attacks on Saudi oil facilities on September 14 2019. There is a rising risk that
tensions between Iran and its neighbours could escalate, which could drag the US into some form of military action.
Still Strong Performance Globally
Bearing all of the above factors in mind, the US receives a strong composite score of 78.5 out of 100 in our Long-Term Political Risk Index. We give
the US its highest scores in the 'characteristics of polity' and 'scope of state' sub-components (91.6 and 95.0 respectively). The 'characteristics of
polity' score is bolstered by a long history of free and fair elections, constitutionally enshrined separation of powers, an independent judiciary and
strong protections of individual rights. The 'scope of state' score reflects that the US government has virtually no domestic or external constraints
on policy enforcement. That said, these scores have been revised down since 2020 given deteriorating trust in the government among sizeable
portions of the population.
We give the US a relatively weaker score in the 'policy continuity' sub-component (70.0), which reflects the differing policy orientations of the
Democratic and Republican parties, and the potential for significant policy change depending on which party controls the executive branch and
the legislature. The US receives its weakest score in the 'characteristics of society' sub-component of the index, at 60.0, a score that reflects the
diverse racial and ethnic composition of the US and the history of racial and ethnic animosity alongside the rise of populism in 2016.
US POLITICAL OVERVIEW
Political Leader/ Government Institution Description
Presidential federal republic. Executive power rests with the president.

Universal suffrage. Legislature consists of two chambers, a 435-seat
System Of Government
House of Representatives (two-year terms) and the 100-seat Senate
(six-year terms).
Head Of State President Joe Biden

Head Of Government President Joe Biden
Last Election Legislative: November 3 2020
Presidential: November 3 2020
Democratic Party controls the presidency and holds effective majorities in the
Composition Of Current Government
House of Representatives and Senate.
Key Figures Vice President: Kamala Harris
Minister of Foreign Affairs (Secretary of State): Antony Blinken
Political Leader/ Government Institution Description
Presidential federal republic. Executive power rests with the president.

Universal suffrage. Legislature consists of two chambers, a 435-seat
System Of Government
House of Representatives (two-year terms) and the 100-seat Senate
(six-year terms).
Minister of Finance (Secretary of the Treasury): Janet Yellen
Minister of Justice (Attorney General): Merrick Garland
Minister of Defence: Lloyd Allen
Speaker of the House of Representatives: Nancy Pelosi
Senate Majority Leader: Chuck Schumer

Chair of the US Federal Reserve: Jay Powell
Democratic Party (219 in House of Representatives, 50 in Senate): Centre-left

party founded in 1828 as the successor to the Democratic-Republican Party.
Main Political Parties (number of seats in parliament)
Led by President Joe Biden, Speaker of the House Nancy Pelosi and Majority
Leader Chuck Schumer in Congress.
Republican Party (211 in House of Representatives, 50 in Senate): Centre-right

party founded in 1854. Controlled executive branch from 2017 to 2021 under
President Donald Trump. Currently led by House Minority Leader Kevin
McCarthy and Senate Minority Leader Mitch McConnell.
Global Macro Outlook
Cross-Currents Testing Economic Normalisation

Editor's note: This article was initially written and published on December 6 2021 and reflects our views at the time. For our most up-to-date
forecasts, please visit our online platform.
We forecast global economic growth to slow from a multi-decade high of 5.5% in 2021 to 4.1% in 2022 and 3.3% in 2023, which would be broadly
in line the five-year pre-pandemic average of 3.1%. As has been the case over most of the past 12 months, our 2022 forecast remains below the
Bloomberg consensus estimate of 4.4%, although consensus seems to be converging slightly lower.
The latest purchasing managers' index (PMI) data show that economic momentum has remained robust across developed markets (DMs) and
emerging markets (EMs), with the number of major economies with PMI readings above the crucial 50 mark picking up in recent months.
However, several developments have recently emerged which have added downside risks to our 2022 growth forecasts. These include the new
Covid-19 variant, Omicron; more hawkish stances by central banks; and greater financial market volatility.
Omicron is much more transmissible than the Delta variant and is becoming the dominant strain in several economies. At the time
of writing in December 2021, the scientific community has, however, not yet confirmed whether or not vaccines will be less effective against the
new strain or whether Omicron caused more severe symptoms. Some economies have already implemented restrictions. Should vaccine
effectiveness prove to be lower or symptoms prove to be more severe than Delta, we would expect to see stricter restrictions rolled out across
many economies, with negative global growth implications via supply chain issues and lower consumption and investment.
By contrast, should Omicron’s symptoms prove less severe than Delta’s, then the new strain displacing Delta could actually reduce the overall
epidemiological risks. That said, many governments have responded cautiously, with some re-introducing travel restrictions.
The second headwind to global growth stems from elevated global inflation and a slightly more hawkish US Federal Reserve (Fed).
We at Fitch Solutions expect the US Fed to raise the federal funds target rate by 50 basis points (bps) in 2022 and 50bps in 2023, up from 25bps in
both years previously. Expectations for more stubborn inflationary pressures and a more hawkish Fed will place additional pressure on central
banks around the world to tighten more aggressively as well, which could weigh on global growth.
The third headwind arises from a rise in financial market volatility since late November 2021, as risk aversion has reared its head,
causing a tightening of financial conditions. The combination of the Omicron variant and hawkish comments by central bankers has caused
high yield bond spreads to widen, in addition to a decline in global markets, with US equities falling about 4-5% and oil prices falling by 15% since
late November 2021.
Moreover, the US dollar has been strengthening in recent weeks, putting downside pressure on EM currencies, which were already under pressure
from a slightly more hawkish Fed, weaker commodity prices and volatility from the currency crisis in Turkey.
Despite these growing headwinds, we note some positive developments. First, after several months of disappointing economic data - as
measured by the Citi Surprise Index - DM growth prints have started to surprise to the upside, particularly in the US, where the Atlanta Fed
nowcasting model is pointing to a sharp acceleration in growth to 9.7% in Q421. Second, recent data support our view that inflation will soon peak.
Key commodity prices have slipped, and recent US ISM manufacturing data have showed that deliveries and backlogs have improved slightly.
Lastly, despite tightening somewhat, monetary and fiscal policy remains relatively loose in most economies, which will help to support global
growth going into 2022. While monetary policy is tightening, real interest rates remain broadly low (and negative in many economies), and many
governments retain generous support schemes.
GLOBAL - MACROECONOMIC FORECASTS (2018-2025)

2018 2019 2020 2021f 2022f 2023f 2024f 2025f
Real GDP Growth (%)
US 3.0 2.2 -3.5 5.6 3.7 2.1 2.0 2.0
Eurozone 1.9 1.4 -6.5 5.0 4.2 2.5 1.9 1.8
Japan 0.6 0.0 -4.6 2.2 2.0 1.3 1.0 1.0
China 6.7 6.0 2.3 7.8 5.4 5.5 5.4 5.3
World 3.3 2.6 -3.3 5.5 4.1 3.3 3.1 3.0
Consumer Inflation (avg)
US 2.4 1.8 1.2 4.6 4.4 2.3 2.1 2.1
Eurozone 1.8 1.2 0.3 2.6 3.4 1.4 1.7 2.0
Japan 1.0 0.5 0.0 -0.3 0.4 0.8 1.0 1.0
China 2.1 2.9 2.5 1.0 2.2 2.3 2.3 2.3
World 2.9 2.9 2.6 4.2 3.8 2.8 2.7 2.6
Interest Rates (eop)
Fed Funds Rate 2.25 1.50 0.00 0.00 0.25 0.50 1.00 1.25
ECB Refinancing Rate 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.05
Japan Overnight Call
-0.10 -0.10 -0.10 -0.10 -0.10 -0.10 0.00 0.00
Rate
Exchange Rates (avg)
USD/EUR 1.18 1.12 1.14 1.18 1.14 1.16 1.20 1.23
JPY/USD 110 109 107 109 110 111 111 110
CNY/USD 6.62 6.91 6.90 6.45 6.65 6.70 6.70 6.72
Oil Prices (avg)

OPEC basket (USD/bbl) 69.78 64.04 41.40 67.50 69.00 70.00 72.00 75.00
Brent crude (USD/bbl) 71.69 64.16 43.21 71.50 72.00 73.00 75.00 78.00
f = Fitch Solutions forecast. Source: Bloomberg, national sources, Fitch Solutions
Developed Markets: Momentum Still Robust, But Lockdowns A Downside Risk
We have revised down our 2021 real GDP forecast for DMs slightly, from 5.1% in November 2021 to 5.0% in December 2021, while
keeping our growth projection for 2022 unchanged at 3.7%. The 2021 revision largely reflects a slightly less bullish view on Japan; we
lowered our forecast from 2.5% to 2.2% due to a resurgence of Covid-19 cases and persistent global supply chain disruptions. We also lowered our
growth forecast for the Czech Republic in 2021 (2.2% from 4.0%). By contrast, we raised our forecasts for Finland (3.6% from 2.7%), the
Netherlands (3.9% from 3.7%) and the UK (7.2% from 6.0%).
The outlook for DM growth has become more challenging in recent weeks as new Covid-19 cases are on the rise across most DMs.
In response to a rapidly deteriorating epidemiological backdrop, economies including Belgium, the Netherlands and Austria have reintroduced
mobility restrictions. In light of the concerning rise of the new Omicron variant, more DM governments are likely to reintroduce mobility
restrictions, which would have negative growth implications. This raises a key downside risk to our 2022 forecast.
Despite these challenges, the latest PMIs suggest robust momentum across DMs. The IHS/Markit composite PMI remained well above the
expansionary 50-mark threshold in the largest DM economies, including Germany, France, the US, the UK and Australia.
The Citi Surprise Index also rose further into positive territory in December 2021, indicating that the latest inflation prints have been higher than
consensus expectations. If this pattern continues, it may result in inflation expectations becoming anchored at a higher level.
DM inflation accelerated in October 2021, coming in at 4.4% y-o-y in October, up from 3.7% in September 2021. Inflation remained significantly
above target in nine out of the 10 largest DM economies as of October 2021, especially in the US (6.2% y-o-y), Canada (4.7%), Germany (4.6%) and
the UK (4.2%).
We retain our view that inflation will gradually converge back to target over H222 as temporary inflation-boosting factors dissipate (although it will
remain well above pre-Covid lows). Persistently above-target inflation in the first half of the year will prompt a hawkish pivot by several DM central
banks in 2022. We forecast the largest hikes in New Zealand (125bps to 2.00%), Norway (75bps to 1.25%), South Korea (50bps to 1.50%), the
Czech Republic (50bps to 3.75%) and Denmark (50bps to 0.00%). By contrast, we expect no hikes in Sweden, the eurozone, Japan and Switzerland.
In the US, we now forecast that the Federal Funds Rate will rise by 25bps in 2022 (and a further 25bps in 2023), up from our previous forecast for
only one hike in 2023.
DEVELOPED MARKETS - REAL GDP GROWTH FORECASTS, % Y-O-Y (2018-2025)

2018 2019 2020 2021f 2022f 2023f 2024f 2025f
Developed Markets Aggregate Growth 2.4 1.7 -4.5 5.0 3.7 2.2 2.0 1.9
G7 2.2 1.6 -4.9 5.1 3.7 2.0 1.8 1.8

Eurozone 1.9 1.4 -6.5 5.0 4.2 2.5 1.9 1.8
EU-27 2.1 1.7 -6.0 4.9 4.2 2.6 2.1 2.0
Selected Developed Markets

Australia 2.8 2.0 -2.4 4.2 3.6 2.9 2.6 2.6
Austria 2.5 1.5 -6.7 4.4 4.3 2.4 1.8 1.5
Belgium 1.8 1.8 -6.3 4.7 3.4 1.7 1.1 1.1
Canada 2.8 1.9 -5.2 5.1 3.8 2.3 1.9 1.8
Czech Republic 3.2 3.0 -5.8 2.2 3.8 4.5 2.4 2.4
Denmark 2.4 3.4 -2.7 3.5 3.0 1.6 1.5 1.5
Finland 1.1 1.3 -2.9 3.6 3.1 2.1 1.6 1.5
France 1.9 1.8 -8.0 6.8 4.0 2.1 1.7 1.7
Germany 1.3 0.6 -4.9 2.8 4.7 2.2 1.7 1.7
Hong Kong 6.6 -1.2 -6.1 6.1 1.9 1.3 1.3 1.8
Ireland 8.5 5.6 3.4 11.4 7.4 5.9 6.1 5.5
Italy 0.9 0.4 -8.9 6.2 4.0 2.1 1.3 1.3
Japan 0.6 0.0 -4.6 2.2 2.0 1.3 1.0 1.0
Netherlands 2.6 1.7 -3.7 3.9 3.1 2.2 2.1 1.5
Norway 1.1 0.9 -0.8 2.9 2.1 1.6 1.6 1.5
Portugal 2.8 2.5 -7.6 4.9 3.0 1.1 1.0 0.8
Singapore 3.3 2.7 -4.8 6.3 3.6 2.8 2.9 2.9
South Korea 2.9 2.0 -1.0 3.8 2.8 2.6 2.5 2.5
Spain 2.4 2.0 -10.8 5.0 4.5 3.9 2.8 2.7
Sweden 1.5 1.2 -2.8 4.5 2.9 2.0 2.1 2.1
Switzerland 3.0 1.1 -2.7 3.6 2.8 1.5 1.4 1.5
Taiwan 2.8 3.0 3.1 6.0 2.7 2.9 2.9 2.9
UK 1.3 1.4 -9.9 7.2 5.0 2.4 2.1 1.7
US 3.0 2.2 -3.5 5.6 3.7 2.1 2.0 2.0
Note: Includes territories and special administrative regions. f = Fitch Solutions forecast. Source: National sources, Fitch Solutions
Emerging Markets: Recovery Will Lose Steam In 2022
Timely data suggest that the economic recovery in EMs slowed in late 2021, and we expect that conditions will weaken further in
2022. The discovery of the Omicron variant has already resulted in travel bans that will hit tourism in Southern Africa and elsewhere and has raised
worries about further restrictions.
In most of the EMs for which we have data, growth in the manufacturing sector in 2021 was slower in September than it was in August and slower
in October than it was in September. In Brazil and the Czech Republic, output fell in year-on-year terms in September and October.
Trade figures also suggest that economic conditions weakened. The year-on-year growth of major EMs’ exports slowed from 26.5% y-o-y in August
to 24.7% in September 2021. Data from early reporting countries - which tend to provide a good guide to EM-wide performance - show that
export growth slowed even further, dropping to an eight-month low of 17.3% y-o-y.
Both of these figures show that momentum is easing and that the base effects caused by falling output in 2020 are fading. We suspect that growth
figures across EM economies will continue to ease going into 2022.
Inflation worries, however, have picked up in recent months. Inflation in major EMs (excluding Argentina) picked up from 3.1% y-o-y in
September to 3.6% y-o-y in October 2021. If we exclude China - where inflation is currently unusually low - October’s figure reached an eight-year
high of 5.9%.
We expect that EM inflation will soon peak and that EM-wide annual inflation will dip from an average of 5.5% in 2021 to 5.0% in 2022. EM-wide
economic growth will also slow; we expect that it will slip from 6.3% in 2021 to 4.8% in 2022. The slowdown will be concentrated in China,
emerging Europe and Latin America.
Emerging Asia: Fastest-Growing Region In 2022
Despite a sharp slowdown in China in 2022 (where we expect that growth will ease from 7.8% to 5.4%), we expect that growth in emerging Asia as
a whole will still be 5.7%, faster than in any other major EM region. If China is excluded, growth will actually accelerate from 6.0% in 2021 to 6.2% in
2022 as a result of recoveries in Indonesia, Malaysia, the Philippines, Thailand and Vietnam. We expect that four of the five fastest-growing EMs in
2022 will come from the region, with India taking the top spot with growth of 7.6%.
Even the slowest-growing Asian EM (Thailand) will experience growth in line with the fastest-growing major Latin American EM (Colombia). We
have left most of our 2022 growth forecasts unchanged over the past month, only making small downward revisions to the Philippines (6.8% to
6.5%) and Thailand (3.9% to 3.7%). In both cases, stronger-than-expected growth in Q321 led us to revise up our 2021 estimate and revise down
our 2022 forecast.
Emerging Europe: Growth Will Ease
We expect growth of just 3.5% in emerging Europe in 2022, which would make it the EM world’s second slowest-growing region. We have left most
of our 2022 views unchanged over the past month, but we revised down our outlook for Romania (from 5.0% to 4.5%).
This small revision was due to a sharper-than-expected slowdown in Q321 and growing evidence that supply chain constraints will remain in place
going into 2022. This revision means that we now expect that robust household consumption will make Poland the fastest-growing European EM
in 2022 (growth of 5.0%). Russia, by contrast, will be the slowest-growing EM (2.3%) as a result of a worsening epidemiological situation and
tightening fiscal and monetary policy.
MENA: Key Outlier
We expect that the Middle East and North Africa (MENA) will be an outlier among EM regions; growth will pick up from 3.2% in 2021 to 4.2% in
2022. The key reason for this forecast, which is unchanged from last month, is that oil production in the region, which was stable in most countries
in 2021, will rise sharply as a result of looser OPEC+ restrictions.
Iran will be an exception; we expect that oil production growth will slow in the country. Qatar, which relies on gas production, will see its crude oil
production falter. In the region’s other major oil exporters, however, we think that rising output will boost incomes and contribute to faster headline
growth. We expect that Saudi Arabia, where GDP will rise by 5.6%, will be the fastest-growing non-Asian EM. However, downside risks to this
forecast are building. If the Omicron situation results in a sharper global economic slowdown than we expect, OPEC output might remain low,
which would prompt us to revise down our MENA forecasts.
SSA: Several Downward Revisions
We have revised down our 2022 growth forecast for Sub-Saharan Africa (SSA) from 3.7% to 3.6% over the past month. We revised our Nigeria
forecast up from 2.8% to 3.0% as a result of strong consumer spending and improving confidence in late 2021. However, we revised down our
forecasts for South Africa, Kenya and Ethiopia.
We reduced our forecasts for South Africa (2.5% to 2.3%) and Kenya (5.2% to 5.0%) following weaker-than-expected recent data. Risks to these
forecasts are weighted to the downside, since they do not include any impact caused by the travel bans imposed following South African
scientists’ discovery of the Omicron variant. Our largest revision, however, was to our forecast for Ethiopia. We cut our 2022 Ethiopian growth
forecast from 6.3% to 3.6% on the assumption that fighting between the central government and Tigrayan rebels will continue into 2022. Were
the rebels to successfully overthrow the current government, we expect that economic conditions would worsen.
Latin America: Underperforming EM Peers
We expect that regional growth in Latin America will be just 2.5%, lower than any other EM region. This is a slight downward revision from our
previous forecast of 3.0% as a result of a more pessimistic views for Brazil and Chile. We have reduced our 2022 Brazil growth forecast from 1.7% to
0.7% on the basis that a worsening external environment, elevated inflation and growing political uncertainty will weigh on the economy in
2022. We have reduced our 2022 Chile growth forecast from 3.9% to 2.8% following signs that the government will rein in fiscal support.
Elsewhere, we have left our Latin American growth forecasts unchanged. Overall, we think that growth in the region will be slow and that Latin
America’s recovery will be weaker than that in other EMs.
Trend growth in the region is slower than in other EMs, and we think that the scale of the Covid-19 outbreak in 2020 and 2021 has caused more
lasting economic damage than is the case elsewhere.
EMERGING MARKETS - REAL GDP GROWTH FORECASTS, % Y-O-Y (2018-2025)

2018 2019 2020 2021f 2022f 2023f 2024f 2025f
Emerging Markets Aggregate Growth 4.7 3.8 -1.6 6.3 4.8 4.7 4.6 4.5
Latin America 1.8 0.9 -6.7 6.2 2.5 2.5 2.4 2.5
Argentina -2.6 -2.0 -9.9 6.5 3.0 2.2 2.2 2.0
Brazil 1.8 1.4 -4.1 4.7 0.7 2.4 2.3 2.4
Chile 3.7 0.9 -5.8 11.0 2.8 2.1 2.5 2.7
Colombia 2.6 3.3 -6.8 8.5 3.9 3.3 3.2 3.2
Mexico 2.2 -0.2 -8.3 5.7 3.3 2.3 2.1 2.4
Middle East And North Africa 1.5 0.9 -4.8 3.2 4.2 4.1 3.6 3.5
Saudi Arabia 2.4 0.3 -4.1 2.8 5.6 2.2 2.6 2.3
UAE 1.2 3.4 -6.1 3.7 4.1 3.9 3.8 3.8
Iran -4.8 -6.8 -6.0 1.9 3.1 7.2 5.3 4.1
Algeria 3.3 2.8 -8.5 3.4 2.4 2.3 1.8 1.9
Egypt 5.3 5.6 3.6 3.3 5.0 5.5 4.2 4.1
Sub-Saharan Africa 3.1 2.6 -1.9 3.6 3.6 3.9 3.9 3.9
South Africa 1.5 0.1 -6.4 4.5 2.3 3.3 3.2 3.0
Kenya 6.3 5.4 -0.3 5.3 5.0 5.4 5.3 5.4
Ethiopia 6.9 8.3 6.5 0.7 3.6 6.3 6.7 7.0
Nigeria 1.9 2.2 -1.9 2.9 3.0 2.7 3.1 2.9
Emerging Asia 6.4 5.5 0.2 7.2 5.7 5.6 5.6 5.4
China 6.7 6.0 2.3 7.8 5.4 5.5 5.4 5.3
India* 6.2 4.0 -7.3 8.6 7.6 6.9 6.8 6.7
Indonesia 5.2 5.0 -2.1 3.9 4.7 5.3 5.0 4.5
Malaysia 4.8 4.3 -5.6 1.5 5.5 3.8 3.8 3.8
Philippines 6.3 6.1 -9.6 4.5 6.5 7.3 6.5 6.5
Thailand 4.2 2.3 -6.1 1.1 3.7 2.4 3.8 2.7
Emerging Europe 3.6 2.7 -2.2 5.2 3.5 3.1 2.9 2.8
Russia 2.8 2.0 -3.0 4.1 2.3 2.1 1.9 1.7
Turkey 3.0 0.9 1.8 8.9 4.0 3.9 3.7 3.4
Hungary 5.4 4.6 -5.0 4.9 3.7 2.5 2.5 2.5
Romania 4.5 4.1 -3.9 5.8 4.5 3.2 3.1 3.1
Poland 5.3 4.1 -2.8 4.8 5.0 4.3 3.6 3.5
Note: * Fiscal years ending March 31 (2020 = 2020/21). f = forecast. Source: Fitch Solutions
Note: Our forecasts are updated frequently; as a result, the views and forecasts in this section may not match those in other sections of the report.
Index Tables
SHORT-TERM POLITICAL RISK INDEX

Score Trend Regional Rank Global Rank
Singapore 95.2 = 1 1
Norway 95.0 = 2 2
Luxembourg 91.9 = 3 3
Denmark 90.2 = 4 5
Canada 88.5 = 5 6
Switzerland 88.1 = 6 7
Finland 86.0 = 7 9
New Zealand 85.8 = 8 10
Netherlands 85.6 = 9 11
Iceland 84.4 + 10 12
Japan 83.5 + 11 13
Ireland 82.5 + 12 14
United Kingdom 82.5 - 12 14
Sweden 82.1 = 14 16
Malta 81.7 = 15 18
Austria 81.5 - 16 21
Germany 80.6 + 17 22
Estonia 79.0 - 18 29
Hong Kong 75.6 + 19 34
Czech Republic 75.4 - 20 35
Italy 75.2 + 21 37
Taiwan 74.8 = 22 38
France 73.8 = 23 44
South Korea 73.5 = 24 46
United States 72.9 - 25 47
Portugal 72.1 = 26 52
Slovakia 71.9 + 27 54
Australia 71.1 = 28 57
Greece 70.8 = 29 58
Spain 66.3 + 30 74
Slovenia 65.2 - 31 81
Israel 63.1 = 32 95
Belgium 61.3 = 33 103
Cyprus 57.1 = 34 124
Regional average 78.4/Global average 61.8/Emerging Markets average 58.1
Note: Includes territories and special administrative regions. Scores out of 100; higher score = lower risk. Source: Fitch Solutions
LONG-TERM POLITICAL RISK INDEX

Norway 97.2 = 1 1
Sweden 93.6 = 2 2
Denmark 92.4 = 3 3
Finland 91.8 = 4 4
Canada 91.4 = 5 5
Austria 90.5 = 6 6
Iceland 90.4 = 7 7
Czech Republic 89.2 = 8 8
Germany 88.1 = 9 9
United Kingdom 87.9 = 10 10
Luxembourg 87.8 = 11 11
Switzerland 87.7 = 12 12
Japan 87.3 = 13 13
Ireland 87.2 = 14 14
Netherlands 86.4 = 15 15
New Zealand 85.8 = 16 16
Estonia 83.9 = 17 17
South Korea 83.5 = 18 18
Australia 83.4 = 19 19
Malta 82.7 = 20 20
Slovenia 82.7 = 20 20
France 81.3 = 22 22
Singapore 81.2 = 23 23
Slovakia 80.2 = 24 25
Belgium 80.1 = 25 26
United States 78.5 = 26 30
Portugal 77.3 = 27 33
Italy 75.2 = 28 37
Spain 74.9 = 29 39
Taiwan 74.7 = 30 40
Israel 70.8 = 31 57
Cyprus 70.2 = 32 59
Greece 67.0 = 33 72
Hong Kong 60.5 = 34 100
SHORT-TERM ECONOMIC RISK INDEX

South Korea 84.8 + 1 1
Taiwan 82.3 - 2 2
Estonia 81.9 - 3 3
Ireland 81.9 + 3 3
Netherlands 80.6 - 5 5
Germany 80.4 - 6 6
Israel 79.2 - 7 7
Malta 78.1 - 8 8
Slovenia 77.9 + 9 9
Finland 77.1 = 10 10
Norway 76.3 - 11 11
Sweden 76.3 - 11 11
Slovakia 76.0 + 13 14
Switzerland 76.0 - 13 14
Austria 75.6 - 15 17
Luxembourg 75.2 - 16 18
New Zealand 74.8 - 17 19
Australia 74.6 + 18 20
United States 74.6 - 18 20
Singapore 74.0 - 20 23
France 73.5 - 21 24
Czech Republic 73.1 + 22 25
Denmark 72.3 - 23 26
Belgium 71.5 - 24 28
Italy 71.0 + 25 30
Canada 70.2 - 27 33
Spain 70.2 = 27 33
Cyprus 68.5 + 29 38
Hong Kong 65.8 - 30 48
Portugal 65.8 - 30 48
Iceland 64.4 - 32 54
Japan 62.3 + 33 59
Greece 57.7 + 34 70
LONG-TERM ECONOMIC RISK INDEX

South Korea 83.6 + 1 1
Norway 83.4 + 2 2
Taiwan 82.1 + 3 3
Netherlands 81.1 + 4 4
Sweden 80.9 + 5 5
Germany 80.8 + 6 6
Ireland 80.6 + 7 7
Estonia 80.4 + 8 8
Denmark 79.7 + 9 9
Israel 78.8 + 10 10
United States 78.6 + 11 11
Luxembourg 78.4 + 12 12
New Zealand 78.2 + 13 13
Austria 77.9 + 14 14
Malta 77.5 + 15 15
Slovenia 76.9 + 16 16
Australia 76.8 + 17 17
Canada 76.3 - 18 18
Finland 76.3 + 18 18
France 75.3 + 20 20
Switzerland 73.9 - 21 22
Czech Republic 73.5 + 22 23
Belgium 73.4 + 23 24
Hong Kong 72.7 - 24 26
Singapore 72.7 + 24 26
Iceland 71.2 - 26 31
Slovakia 71.0 + 27 32
Italy 67.3 + 29 42
Japan 67.3 + 29 42
Portugal 64.9 + 31 46
Cyprus 63.7 + 32 52
Spain 63.4 + 33 54
Greece 54.3 + 34 85
Note: Fitch Solutions' Country Risk Indices are updated frequently; as a result, the scores in this section may not match those in other sections of
the report.
Macroeconomic Forecasts

Indicator 2021e 2022f 2023f 2024f 2025f 2026f
Nominal GDP, EURbn 19,643.1 22,026.2 22,549.4 22,641.1 22,971.3 23,700.6
Real GDP growth, % y-o-y 5.6 3.7 2.1 2.0 2.0 2.0
GDP per capita, USD 69,623 74,998 77,691 80,253 83,004 85,868
GDP per capita, EUR 59,003 65,788 66,975 66,878 67,483 69,248
Population, mn 332.92 334.81 336.68 338.54 340.40 342.25
Unemployment, % of labour force, eop 4.2 3.5 3.8 4.0 3.8 3.9
Consumer price inflation, % y-o-y, ave 4.7 5.0 1.9 2.0 2.1 2.1
Lending rate, %, ave 3.0 3.3 3.8 4.3 4.8 5.0
Private final consumption, real growth % y-o-y 8.0 3.7 2.1 2.0 2.0 2.0
Fixed capital formation, real growth % y-o-y 7.7 5.5 3.0 3.0 3.0 3.0
Exchange rate USD/USD, ave 1.00 1.00 1.00 1.00 1.00 1.00
Exchange rate USD/EUR, ave 1.18 1.14 1.16 1.20 1.23 1.24
Goods and services exports, USDbn 2,429.2 2,859.8 3,048.9 3,242.9 3,431.2 3,618.1
Goods and services imports, USDbn 3,190.9 3,598.9 3,743.0 3,955.7 4,153.8 4,358.1
Balance of trade in goods and services, USDbn -761.7 -739.1 -694.1 -712.8 -722.5 -740.0
Balance of trade in goods and services, % of GDP -3.3 -2.9 -2.7 -2.6 -2.6 -2.5
Foreign reserves ex gold, USDbn 138.9 144.0 149.7 153.6 158.2 163.9
Import cover, months 0.4 0.4 0.4 0.4 0.4 0.4
Budget balance, USDbn -2,772.2 -1,355.9 -1,065.5 -980.4 -1,273.9 -1,327.1
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

Indicator 2027f 2028f 2029f 2030f 2031f
Nominal GDP, USDbn 30,558.4 31,722.7 32,936.7 34,194.9 35,516.8
Nominal GDP, EURbn 24,446.7 25,378.1 26,349.3 27,356.0 28,413.4
Real GDP growth, % y-o-y 2.0 1.8 1.8 1.8 1.8
GDP per capita, USD 88,806 91,697 94,701 97,799 101,046
GDP per capita, EUR 71,045 73,358 75,761 78,239 80,836
Population, mn 344.10 345.95 347.80 349.64 351.49
Unemployment, % of labour force, eop 3.9 3.8 3.9 3.9 3.9
Consumer price inflation, % y-o-y, ave 2.1 2.1 2.1 2.1 2.1
Lending rate, %, ave 5.0 5.0 5.0 5.0 5.0
Central bank policy rate, % eop 2.00 2.00 2.00 2.00 2.00
Private final consumption, % of GDP 69.6 69.8 69.9 70.1 70.2
Private final consumption, real growth % y-o-y 2.0 1.9 1.9 1.9 1.9
Government final consumption, % of GDP 15.8 15.6 15.4 15.2 15.0
Government final consumption, real growth % y-o-y 0.5 0.4 0.4 0.4 0.4
Fixed capital formation, % of GDP 17.6 17.6 17.7 17.7 17.7
Fixed capital formation, real growth % y-o-y 3.0 2.5 2.5 2.5 2.5
Exchange rate USD/USD, ave 1.00 1.00 1.00 1.00 1.00
Exchange rate USD/EUR, ave 1.25 1.25 1.25 1.25 1.25
Goods and services exports, USDbn 3,831.7 4,054.1 4,287.4 4,556.9 4,922.0
Goods and services imports, USDbn 4,600.4 4,851.6 5,110.3 5,409.4 5,790.5
Balance of trade in goods and services, USDbn -768.7 -797.5 -823.0 -852.5 -868.5
Balance of trade in goods and services, % of GDP -2.5 -2.5 -2.5 -2.5 -2.4
Current account balance, USDbn -643.6 -666.8 -686.2 -706.4 -703.6
Current account balance, % of GDP -2.1 -2.1 -2.1 -2.1 -2.0
Foreign reserves ex gold, USDbn 170.3 177.1 184.5 192.5 200.1
Import cover, months 0.4 0.4 0.4 0.4 0.3
Budget balance, USDbn -1,408.1 -1,513.2 -1,622.4 -1,718.4 -1,899.9
Budget balance, % of GDP -4.6 -4.8 -4.9 -5.0 -5.3
f = Fitch Solutions forecast. Source: National sources, Fitch Solutions
Fit
Fitch
ch Solutions, 30 North C
Colonnade
olonnade,, Canary W
Wharf
harf,, L
London.
ondon. E14 5GN, UK
Tel: +44 (0)20 7248 0468
Fax: +44 (0)20 7248 0467
Web: www.fitchsolutions.com
IS
ISSN:
SN: 2058-038X
Analy
Analysst: Cedric Chehab, Jeffrey Lamoureux, Yoel Sano
Edit
ditor:
or: Julie Beckenstein
Sub-E
Sub-Edit
ditor:
or: Natalie Thompson
Mark
Marketing:
eting: Julia Consuegra
Pr
Production:
oduction: Neil Murphy
Cop
opy
y Deadline: January 2022
© 20
2022
22 Fit
Fitch
ch Solutions Gr
Group
oup Limit
Limited.
ed. All rights rreserv
eserved.
ed.
All information, analysis, forecasts and data provided by Fitch Solutions Group Limited is for the exclusive use of subscribing persons or organisations (including those using
the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced,
repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited.
All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Fitch
Solutions Group Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability
whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an
affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2022 Fitch Solutions
Group Limited.
Reproduced with permission of copyright owner. Further reproduction
prohibited without permission.

United States Country Risk Rep

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

United States Country Risk Rep

Uploaded by

Copyright:

Available Formats

Q2 2022

MACROECONOMIC FORECASTS (UNITED STATES 2020-2023)

Political Risk: Mid-Term Elections Raise Policy Continuity Risks

US Growth Revised To 5.6% In 2021, But Above-Trend Growth To Persist In 2022

Q321 Growth Slows Amid Supply Disruptions

Source: BEA, Fitch Solutions

Private Consumption Took A Hit Because Of Car Sales

Source: Bloomberg, BEA, Fitch Solutions

US Households Remain In Good Shape

Source: Bloomberg, BEA, Fitch Solutions

Important To Keep An Eye On Easing Consumer Sentiment

Source: Bloomberg, Fitch Solutions

Private Investment Rebounding

Source: Bloomberg, BEA, Fitch Solutions

growth in the quarter.

Business Inventories Improving, But Customer Inventories Still Low

Source: Bloomberg, Fitch Solutions

Investment To Pick Up As Shortages Ease

Source: Bloomberg, Fitch Solutions

Private Consumption To Drive Growth

e/f = Fitch Solutions estimate/forecast. Source: BEA, Fitch Solutions

2022 Growth To Slow But To Remain Above Trend

US Economy To Return To Trend By End-2022

Source: Bloomberg, Fitch Solutions

ECONOMIC ACTIVITY TABLE

Source: Bloomberg, Fitch Solutions

GDP By Expenditure Outlook

GDP GROWTH FORECASTS (UNITED STATES 2020-2025)

PRIVATE CONSUMPTION FORECASTS (UNITED STATES 2020-2025)

GOVERNMENT CONSUMPTION FORECASTS (UNITED STATES 2020-2025)

FIXED INVESTMENT FORECASTS (UNITED STATES 2020-2025)

NET EXPORTS FORECASTS (UNITED STATES 2020-2025)

External Trade And Investment Outlook

Outlook On External Position

US NIIP Reflects Its Appeal To Global Investors

Note: 2021 data as of Q221. Source: BEA, Fitch Solutions

Manufacturing Dominates Among Defined Industries

Source: BEA, Fitch Solutions

External Debt Leveling Off

Deficit Widened Amid Consumption-Led Import Surge In 2020

e/f = Fitch Solutions estimate/forecast. Source: BEA, Fitch Solutions

US - TOP GOODS IMPORTS IN 2020

US - TOP GOODS EXPORTS IN 2020

CAPITAL & FINANCIAL ACCOUNT BALANCE (UNITED STATES 2016-2020)

CURRENT ACCOUNT BALANCE FORECASTS (UNITED STATES 2020-2025)

CURRENT ACCOUNT BALANCE FORECASTS (UNITED STATES 2026-2031)

Monetary Policy Outlook

Inflation To Remain Above Target In 2022

Source: BLS, Fitch Solutions

Unemployment To Touch Pre-Pandemic Lows

Source: BLS, Fitch Solutions

US FED MEDIAN ECONOMIC PROJECTIONS

Variable Month 2021 2022 2023 2024 Long Term

December 5.5 4.0 2.2 2.0 1.8

December 4.3 3.5 3.5 3.5 4.0

December 5.3 2.6 2.3 2.1 2.0

December 0.1 0.9 1.6 2.1 2.5

Source: US Federal Reserve

Markets Are Pricing In Aggressive Hikes

Source: Bloomberg, Fitch Solutions

Upside Risks To Our Forecasts

Monetary Policy Framework

e/f = Fitch Solutions estimate/forecast. Source: BLS, Fitch Solutions