Friday 23 August 2019
 
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ANALYSIS

US recession unlikely in near term: Arcapita report

MANAMA, June 30, 2019

The US economy is performing well and is unlikely to enter into a recession during the next two years, barring a major asset price correction, said Bahrain-based Arcapita, a global leader in Shar’iah compliant alternative investments.

The first class of indicators, those that measure the volume of economic activity, such as GDP, corporate profits and employment, paint a positive picture of the US economy, the Arcapita report said.

The first quarter of 2019 saw a growth of 3.2 per cent in the economy, while productivity growth during 2018 was 2.4 per cent - the highest level since 2010.

According to findings, unemployment rates have been falling robustly, from 10 per cent in October 2009 to 3.6 per cent in May 2019.  Furthermore, corporate earnings grew at a high rate of 7.8 per cent during 2018, boosted by the Republican tax cut, and asset prices continue to perform favourably despite some tumult during the end of 2018.

While stocks are likely overvalued and due for a negative correction -based on assessment of Shiller PE ratios - the financial regulations enacted following the crisis of 2008 are more likely to lead to slower growth rather than an actual recession.

The report further explores political factors that will affect the US economy. The upcoming presidential race in 2020 provides the impetus for President Trump to stimulate the economy in the run-up to the elections, a significant factor that lowers the likelihood of a recession. This could include a tax cut by executive order targeting the middle class, an infrastructure spending bill, and increased efforts to resolve the trade dispute with China, which is the most proximate threat to the economy at present.

While economic and political factors suggest a recession in the near-term is unlikely, the report also highlights social issues such as significant gaps in the pension system which are likely to cause social and economic tensions in the long run within many major Western economies.

Despite these challenges, the US is well-positioned to remain a top investment destination due to its comparatively more attractive demographic profile, its rich history of multi-ethnic cohesion, and given that it is the most important source of technological progress in the world. - TradeArabia News Service




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