The latest report released by Crédito y Caución predicts that the US economy will grow by 2,5% in 2019, supported by strong business and household confidence, growth in private consumption, and positive developments in the labor market.
Higher wage pressures have led to increased inflation, which is expected to remain around 2%. Although forecasts suggest that the next recession will not occur in 2019, the risks of an earlier-than-expected slowdown have increased.
The risks stemming from monetary policy have diminished given expectations that the Federal Reserve will slow the pace of monetary adjustment, amid uncertainty in the global economy. However, the risks associated with fiscal and trade policies have increased, representing a double threat to an exceptionally strong domestic economy.
Although strong economic growth and low unemployment should help contain the fiscal deficit, sharp tax cuts and increased public spending are considerably widening it. In fact, stimulus is contributing to higher GDP growth, but not fast enough to keep the deficit under control, which is expected to have expanded to over 6% of GDP in 2018. High levels of deficit and debt will limit options for supporting the economy in the event of a recession, which could lead to a deeper recession.
Uncertainty in trade policy is one of the main risks for American businesses and consumers and could precipitate the next slowdown more quickly than expected. The negative consequences for some sectors, such as technology or agriculture, could cause serious damage to the business fabric.
In 2018, bankruptcies in the United States decreased by 8% thanks to solid economic growth, tax reforms, and high business confidence. Crédito y Caución forecasts a significant reduction in 2019, to values close to 2%. The strength of the dollar and increasing trade barriers are putting pressure on the competitiveness of US exporters. Domestically, changes in purchasing patterns have already caused major bankruptcies in the retail sector, a pattern that will persist in the coming years. Furthermore, rising interest rates are making financing more expensive.
