The U.S. Economy in 2019: Challenges and Expectations

18 Sep 2020

What comes to your mind when you think about the probable state of the U.S. economy in 2019?

Judging by the recent headlines in the U.S. stock market, you may think that it won’t be anything less than a roller-coaster ride. But, we think the economic growth in the country will be much less volatile. The U.S. economy should have a much calmer and happier story to tell by the end of 2019, of course, with its fair share of challenges.

Our thinking is not without strong reasons. Going by the global standards at the end of 2018, we got the impression that the worldwide economic growth was on the upward path. The International Monetary Fund (IMF) was of the opinion that the Global GDP would increase by about 3.7 % in 2019 and this is not possible without a healthy contribution from the U.S. economy. The global economy is also bound to face impending instabilities originating from issues such as the U.S.–China trade war, tussle of Italy with the European Union, renewal of U.S. sanctions with Iran, Brexit issues, stock market turmoil and many more. But U.S. economy, being the largest economy in the world, is expected to put these negative effects aside, as it has been able to do over the years.

One feature of the U.S. economy is that there is a distinct disconnect between the real economy and the behavior of the U.S. financial markets. One recent example will make it more evident. Stock prices in the country went largely downhill in the later parts of 2018 but the country saw a Q3 GDP increase of 4.2 %, which was easily the best for quite a few years now. This shows that the volatility and the sharp decline of the U.S. stock market, which was so prominent in late 2018, had no or very little negative bearing on the health of the real U.S. economy.

The economic freedom, which has been a hallmark of the U.S. economy for ages, should take the credit for making it more prosperous, in spite of all the negativity attached. The Fraser Institute Index of monetary freedom showed that the U.S. economy has made good strides in this aspect in recent years. It has given a score of 9.85 to the U.S. economy which is surpassed only by Denmark and Switzerland.  The economic freedom has helped the U.S. economy to scale up above all negative distractions. It has cultivated and unleashed the entrepreneurial zeal among the people and has resulted in stabilizing the money. No wonder we see a strong growth rate accompanying the U.S. economy consistently.

The real U.S. economy, beyond doubt, will have to sail through troubled waters in the year 2019. It will have to adjust to a projected scenario of an increase in interest rates, insufficient economic growth among its trading partners and growing uncertainty regarding the upcoming economic policies of the country. The Dow Jones Industrial Average has indicated that the stocks are down significantly, and the U.S. economy in 2019 will not get the initial push of perceived wealth. The new Congress will face challenges if they want to propel the economic growth by lowering the taxes (as they did in 2018).

Market-oriented economists are also anticipating increased Government spending, protectionism and deficits in the year 2019. These can result in short-lived positive effects on economic growth.

The growth of the U.S. economy will also rely to a certain extent on the performance of its trading partners. The world scene in this context is not too enterprising, though. The economies of Latin America, Canada, and Europe are expected to grow at less than 2% in 2019. Mexico is a notable trade partner of the U.S., but the political climate in this country is expected to be unstable in 2019 and may draw negative developments towards its economy.

Other threats from beyond the economic sphere, such as those related to national security, are also looming large on the U.S. economy. The North Korean nuclear issue is yet to disappear. Moreover, security challenges in the Middle East and China and other isolated terrorist attacks are difficult to predict.

There is a cloud of uncertainty over the upcoming policy decisions of the Trump regime too. The economic team of President Trump may reverse the existing expansionary policies any time if the performance of the economy is not up-to-the-mark.

It’s true that due to the factors discussed above and the reduction of consumer optimism; the U.S. economy will not have a smooth ride while maintaining its upward GDP growth in the year 2019. But due to the inherent nature of the U.S. economy, we have the belief that it will have a happier story to tell us, come 2019-end!