United States. Is a Slowdown in the Offing?

Abstract

In this article, published on the July 2015 issue of THE GLOBAL ANALYST (magazine), the author provides a detailed analysis of the US economy as of first quarter 2015 and an outlook for the coming months.

This article aims to indicate, through economic fundamentals, sentiment indicators, and other predictive indicators, that in spite of the first-quarter of 2015 GDP contraction, the US economy, in the absence of potential tail risk events/severe shocks and externalities, should eventually rebound in the coming quarters.

The article also aims to contribute to the debate about the changes needed in the banking and finance industries, and about the crucial and urgent changes required to the Eurozone governance in order to strengthen the integration and solidarity among members states and to improve global financial stability, and social, and economic sustainability.

It also addresses tail risk scenarios related to the potential unintended consequences of rate hikes decisions, by the Federal Reserve, if the monetary policy is not properly managed.

Conclusion

Overall the US economy seem to be on a solid path to growth and a stronger labour market, thus the author's expectation is that the Country will remain, in the coming years, a leading competitive player in the global arena and an influential and powerful trendsetter and benchmark for all economies.

Although the US economy seems to be in a much better shape than most other ones, according to the author, it cannot be considered in total decoupling from the rest of the world, despite its unique innovative and entrepreneurial spirit and its numerous competitive advantages and comparative advantages versus other countries. The current global slowdown and the numerous externalities and potential economic, financial, and geo-political risks arising around the world might have an important impact even on the US economy, and mostly on the business interests of multinational firms operating on a global scale

Furthermore, if monetary policy normalization in the USA is not completed smoothly and carefully, in spite of improved corporate profits and stock market record highs, there could be the potential risk of a strong correction in the markets, since the prices of various asset classes have been artificially” inflated since 2008 by seven years of consecutive close to zero percent Fed Funds rates and three rounds of massive QEs.

Keywords: US economy, GDP, recovery, eurozone, Greece, liquidity, crisis, normalization, Federal Reserve, ECB, IMF, quantitative easing, Fed Funds, rate hike, fiscal union, monetary union, structural reforms, banking union, political union, outlook, scenario analysis, global scenarios