Economic conditions usually determine the economic state of any country or region at a particular time or period. All these conditions usually change with time depending on the economic and business cycles, considering the rollercoaster that involves the expansion and contraction of the economy. All this provide the benchmark for economic growth, inflation, economic crisis etc. In this regard, we define the world economic outlook as a survey that is conducted by the international monetary fund with the main objective to portray or show the world economy in near or medium context by indicating projections for up to 4 years in the future (Sullivan, 2017).
The world economic outlook is a broader concept of the economic outlook which simply tries to describe the forecasted expectation that indicates how well the economy might perform during an upcoming quarter, a year or any other time period. In this aspect, it may include aspects that relate to inflation, productivity, growth, the balance of trade, unemployment.
All the factors that affect the economy of any particular state or the world at large indicate, to some extent, patterns that might be used in forecasting. In this regard, economic forecasting is mainly built around predictions of the future conditions of any given economy. In the process of predicting, various methods are used that may include statistical models which utilize variables sometimes called indicators. Furthermore, as with economic outlook, the well-known economic indicators include inflation, gross domestic product growth or decline, unemployment rates, interest rates among others. All these variables are used to forecast the economy within some specified time period. All that stated, this essay will try to provide an analysis for economic outlook forecast that will be centered on the various subheadings indicated below.
History of Economic Variables and Comparison to Forecast for the Next Five Years
Considering the United States, it has been a unique year considering the various crisis and activities that have taken place in the country. One major crisis that has affected the economic outlook of the country is the occurrence of hurricanes, the latest hurricanes Irma and Harvey. The adverse effects of these hurricanes are expected to exert about half a point of drag on q3 growth (International Monetary Fund, 2017). Considering the hurricane Harvey, its effects have been witnesses in both the industrial output and retail sales of which the performance have been at an all-time low in August. All this destruction and economic loss have resulted in a rebuilding process. In this regard, the economy has been expected to recover over the next quarter, partially because the government, through the Senate, has already approved the purchase of new goods estimated at $15.3 billion (Sullivan, 2017).
Regardless of the turmoil around the economy, the United States has the largest and most important economy in the world. It represents about 20% of the total global output (International Monetary Fund, 2017). Furthermore, the GDP of America is the largest with the main features a highly advanced and service sector accounting for 80% of the output. In its sense, both the political landscape and the population play a major role in this unique economy. The government provides a proper working environment while the diversification of the population brings a solid work ethic which combines with some sense of entrepreneurship, consequently enabling the economy to flourish.According to statistics, the GDP per capita of the American economy has increased from 51386 in 2012 to 57436 in 2016.Consequently, the population has increased from 314 to 323 million and lastly the GDP has increased from 16155 to 18569 billion USD between the stated time frame (Gurria, 2016).
On the aspect of employment, the economic expansion of the United States between the years 1993 and 2001 resulted in a high rise in employment opportunities, increase in income and subsequently increase in demand. The main player for the economic growth during this period was the increased global integration and the increase in innovation particularly on technology, It at workplace and the increase in high tech companies
Trade structure and deficit
Considering the economic foundation that the U.S is built on, the country is the number 1 leading importer and the second leading exporter (Gurria, 2016). One major import is oil and this has continuously resulted in a trade deficit in the U.S.This is because of the dependency on oil to meet the energy requirements of the nation. Furthermore, the country is dependent on consumer goods produced outside because of the high domestic demand. The trade deficit brought about by oil importation has resulted in various measures such as advancement in domestic oil production which in turn has reduced the gap in the energy sector.
A major advocate of the need to reduce trade barriers between states, the United States has many trade agreements put in place which include the North American Free trade agreement and the world trade organization. On another note, considering the influence that international trade flows play on the American economy, the ongoing trade deficit has resulted in a consistent run of account deficits. On this regard, the current account deficit indicates that the value of services and goods being purchased exceed the goods and services being sold.As a matter of fact, the deficit has always been on a progressive scale since the year 1990 with the peak occurring in the year 2006 when it was 5.8% of the GDP (International Monetary Fund, 2017).
All that stated, this deficit has always been mirrored by a capital account surplus which means that the amount of investment that the United States receives from abroad enables it to finance the deficit. Considering that the United States is the number one recipient of foreign direct investment, the net international investment position of the United States has grown drastically.
Government and policies
The government of any state is mandated with the responsibility of providing an enabling environment for economic growth. One major aspect that can play a role in the economics of any state is tax policies. During the period between 10998 and 2001, the economy of the United States was on an exponential growth because of the fiscal improvements brought about by the increase in taxes that was introduced by the then president, Bill Clinton (Sullivan, 2017).
During the period between 2000 and 2001, the economic struggle of the United States began to manifest itself in form of increased layoffs particularly because of the dot-com burst, several corporate scandals, and the 9/11 incident. To counter this effect, the government, through the Federal Reserve, introduced low-interest rates to counter the struggling economy. On a downside, this has been regarded as the main cause of the secession of the economy that began in 2008.
The recession experienced from 2008 required government intervention whereby there was the combination of monetary policy and expansionary fiscal policy. The fiscal part of this game-changer was a reduction in government expenditure and cutting taxes while the monetary part requires both conventional and unconventional policies.
This aspect mainly focuses on increasing employment rates and stabilizing prices. The body mandated with the policy-making process is known as the Federal open market committee and meets to discuss the developments and outlooks of the U.S economy, which subsequently may lead to policy drafting. One of the major policies focuses on the interest rates whereby the committee decides on its increase or reduction which in turn influences the short-term interest rates. In this regard, the interest rates mainly affect the employment rates and the inflation. The low-interest rates during 2008 and 2012 saw a reduction in unemployment by 6.5% while inflation surpassed 2.5% (Gurria, 2016).
In the loanable fund’s approach, there is an aspect of equilibrium that is particularly determined by the amount supplied particularly savings, to the quantity demanded, which basically consist of investments and bond-financed government deficit. Furthermore, government borrowing and interest rate determination are important aspects when determining the capital inflows into the demand and supply. This equilibrium is defined by either the goods or money, whichever is constant This deficit, to some extent, is determined by the foreign investment of which the united states has loaned humongous amounts of money to other nations all in the name of development activities. In return, the money is attached with interest rates that consequently result in an expansion of the economy when fully paid.
A practical strategic plan may be obtained because the federal government has put in place measures to control the flow of goods and money in the economy. Such measures include tariffs, taxes, volume limitation and legislation among others. On another note, the increase in foreign nations to purchase U.S treasuries and dollars has resulted in the investment of the government on exports
Gurria, A. (2016). Overview of the 2016 economic survey of the United States. Retrieved from OECD: www.oecd.org/eco/surveys/economic-survey-united-states
International Monetary Fund. (2017). World economic outlook.
Sullivan, E. (2017, September 26). U.S economic outlook. Retrieved from focus economics: www.focus-economics.com/countries/united-states