United States

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United States — January 2022

The United States is the largest economy in the world. Nominal GDP reached about $23 trillion in 2021. The US outperforms most other developed economies on measures of per capita income and business climate. The growth outlook is in line with other advanced economies and creditworthiness 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 2022 and 2026. Business climate is measured by the World Bank’s latest 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.

Economic outlook

The implementation of several large fiscal stimulus packages, accommodative monetary policy and rising vaccinations are helping the US economy recover from the COVID-19 pandemic. Consumers are returning to former patterns of activity, and confidence is elevated as jobs return. Persistent issues in global supply chains and runaway inflation remain chief concerns. The US Bureau of Economic Analysis predicts growth to moderate to 2% in 2022 after a 6.5% spike in 2021.

The Biden administration has laid out its full set of plans to strengthen the economy under the “Build Back Better” proposal, which passed the House of Representatives in November 2021. The American Jobs Plan focuses on increasing infrastructure investment, while the American Families Plan expands support for education and families. The Act made additional government spending possible and is expected to support economic growth beyond the pandemic, if it passes the Senate. The potential for increases in taxes to finance such spending remains possible, though fiscal policymakers are unlikely to hike taxes significantly so as not to impair growth. An ageing population and lower productivity remain constraints on long-term growth.

GDP per capita is amongst the highest in the world. Job losses in the wake of the pandemic hit incomes in 2020, before they rose in 2021 alongside the economic recovery. The IMF forecasts GDP per capita to approach US$87,000 by 2026. But long-standing inequalities in income and wealth remain.

Country risk

The US has a strong investment grade credit rating. This implies a very low likelihood that it will be unable or unwilling to meet its external debt obligations.

The US business climate is ranked 6th out of 190 economies on the World Bank’s ease of doing business gauge. The US scores in the top quintile across most categories, and markedly outperforms other advanced economies in categories such as getting credit, resolving insolvency and enforcing contracts.

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.

Bilateral relations

The US was Australia's 2nd largest bilateral trading partner in 2020. Total goods and services trade between the US and Australia amounted to almost $73 billion in 2020 (9.1% of Australia’s total trade portfolio). The two parties signed a free trade agreement in 2004, which allows most Australian exports significant access into the US market and encourages greater bilateral investment. There are more than 4,000 Australian parent companies with 1,500 individual entities in the US, and more than 3,000 individual points of presence. Major Australian firms in the US include Austal, BHP, Rio Tinto, Incitec Pivot, LendLease, Macquarie Group, and Servcorp. The COVID-19 pandemic disrupted bilateral trade. Major Australian goods exports include gold, beef, pharmaceutical products and aircraft, spacecraft and parts. Major goods imports from the US include aircraft, spacecraft and parts, passenger motor vehicles, crude petroleum and pharmaceutical products.

The COVID-19 pandemic and associated international travel restrictions have hurt services trade over the past couple of years. US student enrolments in Australia stood at about 9,000 in 2020 and fell to about 3,500 in 2021, well below pre-pandemic levels. US tourist arrivals fell sharply in 2020 and dropped further in 2021. The ongoing pandemic points to another year of uncertainty for services exports in 2022. Longer term, rising incomes in the US will likely support recovery in demand for Australian education and tourism.

The US remains Australia’s largest two-way investment partner. Annual bilateral investment has totalled $1.8 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.