The United States is the largest economy in the world. Nominal GDP reached about $25 trillion in 2022. The US outperforms most other developed economies on measures of per capita income and business climate. The growth outlook is slightly lower than other advanced economies whilecreditworthiness is high.
The above chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate rank and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2023 and 2027. Business climate is measured by the World Bank’s 2019 Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other countries in the region.
Strong domestic consumption is supporting US growth despite dual headwinds from rising interest rates and high inflation. Exports grew strongly in 2022 on the back of rising demand for natural gas and wheat exports amid shortages on global markets.
But economic growth in the US, like in many other advanced economies, is slowing in early 2023. The IMF expects economic growth to moderate to 1.4% in 2023 from 2% in 2022 and 5.9% in 2021. Price pressures will recede as energy prices stabilise and consumer demand slows; however, the US Federal Reserve does not expect inflation to return to the 2% target until late 2024. Private investment and current tight labour market conditions will moderate in response to sluggish demand and higher interest rates.
Persistent issues in global supply chains and runaway inflation that prompts even more aggressive interest rate hikes remain the chief risks to the outlook. On the upside, the potential for an easing of supply chain bottlenecks and commodity prices could contribute to a faster easing of inflation and boost private consumption.
Longer term, the government’s infrastructure spending bill will boost public consumption and investment over the next 10 years, helping to raise the productive capacity of the economy. Alongside this, investment in infrastructure and local supply chains will help enable the shift toward greener power sources, such as an upgraded electricity grid and marine facilities to support the build out of offshore wind power. An ageing population remains a constraint on long-term growth. Overall, the Congressional Budget Office’s latest projections (May 2022) point to growth of 1.6% per annum, on average, over the 10 years to 2032.
GDP per capita is amongst the highest in the world. The IMF forecasts GDP per capita to approach US$90,000 by 2027. Still, household budgets are being squeezed by current high inflation, as real wages have declined. Long-standing inequalities in income and wealth remain.
The US has an investment grade credit rating. This implies a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations.
The US scores in the top quartile in almost all areas of governance and outperforms advanced economies in most categories except for political stability and absence of violence and voice and accountability.
The risk of expropriation in the US is low. In the event of expropriation, the law requires fair compensation to the property owner.
Political risk is low. However, political polarisation between and within major parties can make it difficult for the government to implement policies and address long-standing structural issues. Racial and income inequalities contribute to bouts of social unrest and violence. A split Congress could lead to increased political and policy uncertainty in the lead-up to the 2024 Presidential election.
The US is Australia's third largest bilateral trading partner. Total goods and services trade between the US and Australia amounted to around $68 billion in 2021 (7.4% of Australia’s total trade portfolio). Both parties signed a free trade agreement in 2004, which allows most Australian exports significant access to the US market and encourages greater bilateral investment. Major Australian firms in the US include Austal, BHP, Rio Tinto, Incitec Pivot, LendLease, Macquarie Group, and Servcorp. Major Australian exports include business services, telecom and ICT services, beef and other meats. Major imports from the US include technology and other business services, aircraft, spacecraft and parts and passenger motor vehicles.
The COVID-19 pandemic and associated international travel restrictions hurt services trade over the past couple of years. After reaching more than 12,000 in 2019, US student enrolments in Australia fell to about 9,000 in 2020 and 3,800 in 2021. US enrolments have since recovered only slightly to 4,500 in October 2022, remaining well below pre-pandemic levels. Lower US enrolments can likely be attributed to the severity and length of international border closures in Australia, increasing difficulties to travel and study abroad and greater uncertainty around the ability to transition to work visas.
Tourist arrivals have gradually picked up, as international border restrictions eased. Another year of open international borders and pent-up demand for travel should support further recovery in tourism, and broader services exports, in 2023.
The US remains Australia’s largest two-way investment partner. Annual bilateral investment has totalled $2.1 trillion over the past few years. Leading sectors for US investment in Australia are mining, finance, and insurance. Australian investment in the US focuses on agriculture, resources and energy, infrastructure, education, health, advanced manufacturing, defence and fintech.
Department of Foreign Affairs and Trade
Austrade
