OLDWICK, N.J.--(BUSINESS WIRE)--AM Best expects economic growth to accelerate modestly in 2020 owing to accommodative monetary policy, diminished risks surrounding trade, a strengthening housing market and consumer spending bolstered by wage gains and high levels of confidence. However, political gridlock and uncertainty, along with the ever-present threat that U.S.-China trade negotiations could break down, may stall such growth.
A new Best’s Special Report, titled, “Positive Trends Continue for the US Economy,” notes that the U.S. economy entered an 11th year of expansion, with gross domestic product growth in 2019 registering 2.3%. Additionally, U.S. equity markets had a very strong year, especially in the second half of 2019 after the Federal Reserve began cutting interest rates. Current accommodative monetary policy is a positive for equity markets; however, increasingly rich valuations counterbalance the positive outlook. The job market remains strong, with the unemployment rate at a 50-year low, and inflation remains below the Fed target of 2.0%. Lastly, the decline in mortgage interest rates over the past year boosted sales of new and existing homes, although concerns about housing affordability continue.
According to the report, the U.S. presidential election and the potential for policy uncertainty are the biggest risks to U.S. economic stability. A potential tax-reform repeal or health care policy changes regarding Medicare expansion and prescription pricing proposals have the potential to create disruptions. Other risks include the limited monetary policy tools the Fed has available to use in the event of an economic downturn, as well as the limited ability to implement fiscal stimulus due to the high level of government debt; a slowdown in global growth, particularly in China; and an increase in corporate defaults by a highly indebted U.S. corporate sector. The potential global economic impact of the coronavirus outbreak also could negatively affect the U.S. economy. While the probability of a recession taking hold in 2020 remains low, according to published reports, those odds increase in the latter part of the year.
AM Best believes that should current economic conditions (e.g., moderate growth, low unemployment, below-target inflation) remain stable, additional cuts to the federal funds rate from the Fed will be unlikely.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=294288.
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