United States

The US has very weak, and worsening, public finances. The federal government-to-GDP ratio has spiked in recent years, from 108% in 2019 prior to the pandemic to more than 124% in 2025. Despite strong nominal GDP growth and low unemployment, successive US governments have failed to reduce fiscal deficits. On the contrary, they have pushed through repeated fiscal easing packages, through lower taxes and/or increased spending. Meanwhile, little has been done to stem the growth of healthcare spending. Meanwhile, high inflation and increasing fiscal risks have pushed up the government’s borrowing costs substantially, further weakening the US’s fiscal position. Interest expenses now make up 19% of federal government revenues, against 10% in 2019. We expect the debt-to-GDP ratio to continue increasing over the next years. New customs revenues are just enough to pay for rising interest expenses.

On the external front, the US has also weak fundamentals. The country has run consistently elevated current account deficits, pushing net external debt to high levels. The strong dollar, as well as high inflation, have appreciated the real exchange rate, eroding the industrial sector’s competitiveness. Large government deficits and a lack of domestic savings are also keeping imports elevated.

The US scores relatively well in terms of economic freedom, ranking 26th in the Heritage Foundation’ index. The hallmarks include enforcement of property rights, business and financial freedom and judicial effectiveness. Lower corporate tax rates embedded in the One Big Beautiful Bill Act will further strengthen the US’s position as a good place to do business. On governance, the country is a top performer in terms of regulatory quality and rule of law. However, relative to many peer countries, the US is lagging behind in terms of control of corruption. On sustainability, the US has a low recycling rate and a low share of renewable output compared to peer countries. An area to watch is also the potential reduced effectiveness of government public services following large layoffs as part of the Department of Government Efficiency (DOGE) initiative.

Politics is increasingly divisive, both between and within political parties. Repeated disagreements over the debt ceiling and the budget have increased economic and political uncertainties, which could increasingly weigh on economic performance. In 2025, the stand-off over the budget led to the longest government shutdown in US history. Political infighting also reduces the chance that large public finances imbalances will be addressed in an orderly manner. The mid-term elections, held in November, could see the legislative branch of the government swing back to the Democrats. This could lead to rising political stand-offs between the Republicans and the Democrats. However, executive-controlled policies (trade, regulation, immigration and foreign policy) are likely to remain the dominant macro drivers even if Congress becomes divided.