The worst may be behind us, but real growth not likely until 2011
As we close one of the most economically challenging decades of the past 40 years, we are now facing the uncertainties and challenges of a newly started decade in which both US and European economies will be transferring some of their influence to fast-growing emerging economies.
Most GDP forecasts point to moderate growth for the U.S. economy in 2010 — something along the lines of between 1.5 percent and 2.7 percent in the most recent forecast by Blue Chip Economic Indicators. Th is moderate economic growth will contain inflation and keep interest rates low. Unemployment is expected to remain at 10 percent in 2010. Historically, GDP growth rates of 3.5 percent or higher are necessary for the unemployment rate to decrease. Unemployment is not expected to decrease appreciably until 2011, when current forecasts project GDP growth of 3.5 percent and unemployment of 9.1 percent.
With U.S., Euro Zone and U.K. economies still purging the results of their financial excesses in 2010, economic growth for the world economy will come from China (9.0 percent growth), India (6.4 percent), Brazil (3.5 percent) and Mexico (3.3 percent). Given current U.S. dollar valuation, companies with exports or revenues from those nations should fare well in 2010. The increase of foreign revenues could enhance earnings for many public U.S. multinationals and provide a boost to stock markets in 2010.
With the potential of a financial collapse left behind, the return to a subdued "new normal" should dominate the economic activity in 2010. The difference between brisk or sluggish economic growth will depend on the following factors and policy choices:
U.S. Public And Private Debt
The high levels of both public and private debt will impact bank lending and consumption levels. Public debt is drawing available funds from banks, which adversely impacts business lending. Continuance of this situation will constrain economic growth via limited funding to business. The high levels of private debt, together with declining real estate prices and increasing job uncertainties, will continue to depress private consumption (about 70 percent of the economy), thus restraining the growth of retail sales economy wide.
The single most important issue impacting competitiveness, profits and job creation is the large spending by businesses and individuals on healthcare costs. Health spending tied up $2.3 trillion dollars, equal to $7,681 per person per year or 16.2 percent of the GDP. This is almost double the Organization for Economic Co-Operation and Development countries' average of 8.9 percent. Despite such level of spending there's been no substantial performance improvement on life expectancy in the U.S. "Life expectancy in the United States stands at 78.1 years, almost one year below the OECD average of 79.0 years," according to the OECD
A more competitive healthcare market can free up consumer dollars, which can then be spent on and benefit all U.S. industries. Essentially, this could amount to a free stimulus package by itself. Moreover, healthcare costs undermine the competitiveness of U.S. companies in global markets and bias economic opportunities toward large companies — which can negotiate better healthcare plans — versus small businesses. In addition to determining the amount of consumer dollars that can be reallocated to other sectors, the outcome of current healthcare bills in the U.S. Congress will determine the potential growth the U.S. economy can experience in 2010 through the reduction of business costs.
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