The prospects for the future of the United States during the next year are unusually opaque.First, is the economic outlook. Second, the economy is exposed to a number of potential shocks each of which may have a negative impact on the real economy. Third there are three major political events looming:(1) The outcome of the investigation of the links of Trump and his campaign to Russian officials. (2)The possibility of war on the Korean peninsula. (3) Finally, the outcome of the American Congressional elections in November.Looking to the future: America in 2018
For Bangladesh, the strong US economy will lead to
greater exports
Forrest Cookson
The prospects for the future of the United States during the next year are unusually opaque.First, is the economic outlook. Second, the economy is exposed to a number of potential shocks each of which may have a negative impact on the real economy. Third there are three major political events looming:(1) The outcome of the investigation of the links of Trump and his campaign to Russian officials. (2)The possibility of war on the Korean peninsula. (3) Finally, the outcome of the American Congressional elections in November.
The Economy:
The American economy continues its slow steady growth out of the recession of 2008-2009. There is a slight uptick in GDP growth over the past two quarters (2017.2 and 2017.3) to above 3per cent and most forecasters believe the 2017 fourth quarter growth will be greater than 3per cent. Most forecasters also believe 2018 will result in a 3per cent + GDP growth rate. The Trump administration argues the growth rate will be even higher, but these extravagant forecasts seem very unlikely. The economy has been in this slow growth mode for years and it will continue in the 2.5-3.5per cent range. There are two reasons: First, the economy is pushing against its capacity and increases in capacity require increased investment. Second, growth equals the increase in the labor force plus the increase in productivity. Increases in the labor force will be slow as the labor market is close to full employment while productivity increase is slowing over the past twenty years and nothing has happened to change this.
With the economy essentially at full employment, the inflation rate will begin to rise above 2per cent due to the increases in commodity prices combined with increases in wages that should accelerate during 2018. The Federal Reserve will be making small increases in interest rates several times during this year that will tend to moderate investment in automobile purchase and housing. The Government deficit will expand due to reduced tax collections, arising from the Trump tax legislation. The new tax law is very complex with respect to the impact on foreign investment in the United States, but initial reviews suggest it will discourage more FDI into the United States.
The balance of payments is particularly difficult to forecast. Higher interest rates will begin to attract more foreign capital flows and a growing stock market will attract foreign funds. The Chinese Government may begin to reduce slowly its holdings of US Government securities. The dollar has been weakening over the past year but should become significantly stronger in the coming year. Oil exports are growing, capital inflows are rising, and American corporations are going to bring a great deal of offshore funds into the United States. I expect the dollar to appreciate 10-15per cent against a basket of major currencies during 2018.
This suggests a good year for the American economy, a stronger growth performance, a stronger dollar, full employment, rising wages and modest inflation. It will be a macro-economists dream.
Economic Shocks: There are five potential shocks to the economy:
1. The share market might experience a spike correction of the DJ index by 15-20per cent, but there will be a strong recovery in the market so the total effect will be a 10-15per cent increase in the market by the beginning of January 2019.
2. The free trade agreement with Canada and Mexico may be abandoned. This will cause a major negative stock to American agriculture. The production of automobiles will be disrupted. The impact on the American economy will be negative.
3. Debt levels are climbing in the United States and there remain concerns bubbles are appearing in financial markets that could led to sharp, unexpected changes. These possible shocks are linked to the Federal Reserves changes in interest rates and its pulling out ofasset markets where it has purchased billion of securities. Most observers are complacent that the financial markets will adjust to the Federal Reserves operations without difficulty. But the optimists have been wrong before.
4. The expectation are for continuing economic growth and the tax reductions will strengthen such expectations. Nevertheless, the expansion of the American economy has been going on for a long time, it is due for a correction. There is some risk that by the end of the year the economy will go into mild recession. The higher probability is such a recession comes in 2019 or 2020.
5.Finally, the disputes over the budget and funding additional government debt are not resolved. There is some risk that these disputes may last longer than expected with strong negative impact on the economy.
Impact on Bangladesh
For Bangladesh, the strong US economy will lead to greater exports. It may take some months for these effects to emerge but there are great opportunities here. However, the stronger dollar weakens competitiveness in European markets unless there is a depreciation of the Taka with respect to the dollar. The growing world economy will raise prices of imports bringing more inflation to Bangladesh.
Politics:
There are many contentious issues facing the United States Government: Immigration, medical care, military spending, energy policy, trade issues, but there are three political events of tremendous importance and it is these that are reviewed here.
1. The Russian Investigation. There are two things that are clearly true: The Russian Government is interfering in American politics by publishing both stolen real information and fabricatedinformation through fake outlets.This interference is aimed at causing political conflict, promoting candidates that will at in Russias interests, ruining reputations, and influencing legislation before Congress. This is a continuing, direct attack on the United States and the United States Government should responded with force and punishment of the Russian Government. Strangely, the United States Government has not done so. Second, this Russian interference was used in 2016 to support the election of Donald Trump. Representatives from Trumps campaign organizationswere aware of these activities and sought to obtain support from the Russians. Was Trump himself aware of these actions? Of course, he was.
Trump has been an obvious target for Russian intelligence for the past twenty years. His financial operations, his contempt for patriotism, his egotistical character are red lights for Russian intelligence, allsignaling a potential agent. The panic reaction of the President and his team to discredit the report of an experienced ex-MI6 officer with extensive contacts in Russia reflects the accuracy of that report. When the Special Consuls investigations are complete, we are likely to see extensive irregular financial linkages between the Trump business organization and Russians and Russian institutions with close links to the Russian intelligence. Trump can feel the breath of the investigation and he is desperate to bring this to an end. By the end of the year continuation of the Trumps presidency will be in doubt.
2. War in Korea? The South Korean Government has moved skillfully to commence negotiations with North Korea, avoiding the demand of the United States that talks must commence only when North Koreas nuclear program is closed down. This position of the United States is obviously simplistic and at present the dangers in Korea are declining. Hopefully South Korea will move forward, negotiating some reduction of the conflict. If the American approach of demanding that North Korea abandon its nuclear weapons and ballistic missile program is imposed on the negotiations then these talks will break down and we will be back snarling at each other.
The Trump policy will be to demand the abandonment of nuclear weapons. But Trump will not start a war over this, he will threaten without result. We can expect peace dressed in the cloak of war.
3. The Congressional elections. Despite the strong economic performance, the Democrats will gain control of the House of Representatives with a comfortable margin. The Democrats will also gain control of the Senate but will not reach the magic number of 60 Senators, thus neither party will actually have control of the Congress. Mr. Trumps programs will be stopped. But little progress will be made in dealing with the critical problems facing the United States. Perhaps Mr. Trump will be able to negotiate with the Democrats to achieve some things that are of mutual benefit. But the cup is bitter and memories of abuse very strong. The failure to negotiate and to try to find common ground on critical issues will mean that much will be reversed or further progress blocked by the Democrats.
President Trump is an immoral person. He lies, he abuses women, he is selfish wrapped up in himself, he is intellectually lazy, and his businesses practices are border line illegal. He is a cruel man towards those weaker than he is and his enormous insecurity leads to very disturbing behavior. The American people do not like their President and all of the success of the economy will not bring them to think better of this man. By the end of 2018 There will be no improvement in the American peoples assessment of their President.
The writer is an economist
