US economic outlook

Global Outlook: the US debt ceiling saga

In EIU’s latest global outlook video, global forecasting director, Agathe Demarais, and global economist, Cailin Birch, discuss the US debt ceiling saga.

Although rough outlines of a deal to resolve the debt stand-off are in place, Democrats and Republicans are a long way off in reaching a detailed agreement. Democrats want to protect their priorities (renewable and other green incentives under IRA, existing work requirements for food assistance) and Republicans refuse to consider tax increases as a way of narrowing the deficit. 

EIU’s core forecast is for a last-minute compromise before the default deadline (around June 1st), causing bond yields on all maturities to rise, potentially by 25-50 basis points above where they are now. 

“The negative economic effects will intensify the longer the government goes past June 1st without a deal. We could start to see more noticeable declines in asset prices and more weakness in the banking sector. A credit rating downgrade would then become more likely, which would raise borrowing costs in a more lasting way.”

CAILIN BIRCH, GLOBAL ECONOMIST, EIU

While EIU does not expect the US economy to default, a year-on-year recession is guaranteed if they do so and would be difficult to recover from – something neither party wants to be responsible for.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.