The United States is the largest economy in the world. Nominal GDP reached about $27 trillion in 2023. 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 while 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 2024 and 2028. Business climate is measured by the World Bank’s 2019 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.
US real GDP grew 2.5% in 2023 thanks to resilient consumer spending supported by a drawdown in pandemic savings and a robust labour market. Investment rose strongly, in part thanks to economic policies that supported manufacturing construction and greater state and local government spending. On the downside, despite record production in energy-focused commodities amid global shortages, US exports fell in 2023. Nevertheless, the economy performed well despite the effects of tighter monetary policy and financial conditions. Higher interest rates helped lower inflation to 3.1% year-over-year in January 2024 from as high as 6% in early 2023.
Continued tight monetary and fiscal policies, notwithstanding financial market expectations for lower interest rates, are likely to weigh on economic growth in 2024. The IMF forecasts real GDP growth to slow to 1.5% in 2024. Growth is likely to pick up in 2025 on the back of accommodative monetary policy settings. Excess household savings are likely to further diminish, while investment is poised to slow. Inflation should continue to decline as the economy slows, while employment growth is poised to ease further and the unemployment rate to edge up. Exports are likely to recover on the back of increasing petroleum exports due to greater shale production.
Persistent issues in global supply chains that keep upward pressure on inflation and prompt higher-for-longer interest rates remains the chief risk to the outlook. On the upside, the potential for further easing of supply chain bottlenecks and commodity prices could contribute to a faster fall in inflation that boosts private consumption more than expected.
Longer term, the government’s infrastructure spending bill should boost public consumption and investment over the next 10 years, helping raise the productive capacity of the economy. Alongside this, investment in infrastructure and local supply chains will likely help enable the shift toward greener power sources, such as an upgraded electricity grid and marine facilities to support the build out of offshore wind power. The Inflation Reduction Act will also support greater investment in renewable energy. An ageing population remains a constraint on long-term growth. Overall, the IMF predicts growth of 2% on average between 2025 and 2028. The Congressional Budget Office’s latest projections (June 2023) points to a similar long-term outlook, of 2% GDP growth per annum, on average, over the 10 years to 2033.
GDP per capita is amongst the highest in the world. The IMF forecasts GDP per capita to approach US$95,000 by 2028. Still, long-standing inequalities in income and wealth remain.
The US has an investment grade credit rating from the private rating agencies. This implies a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations.
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 tensions and income inequalities contribute to bouts of social unrest and violence. Political and policy uncertainty could rise in the lead-up to and beyond the 2024 Presidential election, particularly if Congress is split.
The US is Australia's third largest bilateral trading partner. Total goods and services trade between the US and Australia amounted to around $87 billion in 2022 (7.3% of Australia’s total trade portfolio). Both parties signed a free trade agreement in 2004, which allows most Australian exports significant access to the US market and encourages greater bilateral investment. Major Australian firms in the US include Austal, BHP, Rio Tinto, Incitec Pivot, LendLease, Macquarie Group, Servcorp, Atlassian and WiseTech Global. Major Australian exports include business services, telecom and ICT services, beef and other meats. Major imports from the US include technology and other business services, aircraft, spacecraft and parts, passenger motor vehicles and pharmaceutical products.
Despite a post-pandemic recovery, US student enrolments in Australian education institutions, at around 6,500 through the year to September 2023, remain at almost half their peak of 12,000 in 2019. Lower US enrolments can likely be attributed to the severity and length of international border closures in Australia and, more recently, growing uncertainty related to the Australia’s visa reform agenda and the ability for overseas students to transition to work visas.
Another year of open international borders and resumption of more flights helped accelerate the recovery in tourist arrivals through 2023. Improving US consumer confidence and a strong US dollar also supported demand for Australia-bound tourism. A competitive Australian dollar and another year of recovery in international travel should support further demand for Australian tourism, and broader services exports, in 2024.
The US remains Australia’s largest two-way investment partner—annual bilateral investment totalled $2.2 trillion in 2022. Leading sectors for US investment in Australia are nonbank holding companies, mining and manufacturing. Australian investment in the US focuses on agriculture, manufacturing, professional, scientific, and technical services, and finance and insurance.
Department of Foreign Affairs and Trade
Austrade
