Illustration: Lu Ting/GT

With the year-end approaching, the US is expected to overtake the rest of the world in terms of economic growth next year. That is to say, the world's largest economy will likely grow faster than the previous year and notch a rate of increase greater than all other countries and regions.

Throughout the post-financial crisis era, only 2012 saw the US surpass the rest of the world with its economic expansion, with the pace of growth increasing by 0.719 of a percentage point during that year. This figure stands in stark contrast to economic contractions of 0.778 of a percentage point, 0.433 of a percentage point and 1.126 percentage points for the global, developed- and emerging-market economies respectively. Thanks to the US's strong fundamentals, the International Monetary Fund (IMF) estimates that US economic growth will accelerate 0.939 of a percentage point in 2015, outpacing the global, developed- and emerging-market economies.

Relatively high growth, low inflation and stabilizing employment conditions are likely to be the defining characteristics of the US economy next year. The IMF's 2015 forecast of real GDP growth in the country is 3.093 percent, higher than the historic average of 2.65 percent set since 1980. Meanwhile, inflation is expected to reach 2.126 percent next year, slightly higher than the 2 percent target set by the Federal Reserve; yet considering that this figure is based on overestimated oil prices, real inflation will likely fall short of earlier expectations. In addition, estimated unemployment is at 5.945 percent - though this is higher than pre-crisis levels, it marks a big improvement from the 7.91 percent average set during the height of the crisis.

Behind the country's strong recovery are several important domestic factors.

Firstly, the US economy has robust endogenous growth momentum. Although US real GDP contracted 2.1 percent quarter-on-quarter in the first quarter of this year, and later grew by 4.6 percent and 3.5 percent during the second and third quarters respectively, its endogenous growth rates, after the exclusion of confounding factors like inventory fluctuations, international trade and government spending, were 0.87 percent, 3.21 percent and 1.92 percent during the corresponding periods, indicating that recovery has been steady.

Secondly, problems curbing US consumption have been largely eliminated. It goes without saying how important consumption is to the US economy. During the first three quarters of 2014, consumption accounted for 1.27 percentage points of US economic growth, a relatively low level compared with the historic average of 2.09 percentage points.

Slowing income growth was one of the primary drags on consumption. Year-on-year growth in disposable per capita income during the first three months of this year was below 3 percent. Yet, the situation has changed, with the disposable income growing faster than 3 percent from April to September. Consequently, the US consumer confidence index has gradually recovered from 80 in March to 89.4 in November, a high not seen since July 2007.

Thirdly, the US housing market has picked up steam again following a short-term correction. It wasn't until mid-2012 that the US housing market finally started its post-crisis rebound. However, due to strong expectations of an interest rate hike by the Fed, the rebound trend has struggled to gain momentum. The Standard & Poor's/Case-Shiller 20-city home price index declined for four consecutive months from November 2013 to February 2014 before resuming growth from March to September.

Fourthly, consistent improvements have been made this year in the US labor market. The unemployment rate fell from 6.6 percent in January to 5.8 percent in September, while the employment ratio climbed to 59.2 percent from 58.8 percent, with monthly-added-jobs averaging at 269,700, much higher than the historic average of 111,400. Moreover, other indicators such as job vacancy rates and weekly working hours all indicate that there is room available for a further increase in employment.

Fifthly, US industrial output has undergone robust growth. The US industrial production index grew by an average of 3.94 percent year-on-year during the first three quarters, while industrial output rose 3.7 percent over the same period compared with a year earlier.

Of course, challenges still exist for the US economy in 2015, including slow growth in labor productivity and a rising savings ratio. However, the real threats to the US economy may come from political and policy uncertainties. With US President Barack Obama's term coming to an end, signs of wavering public support may lead to a more assertive domestic policy approach, which could in term create new risks for the US economy. Additionally, under the leadership of Janet Yellen, the Fed appears hesitant in terms of its decision making, which is likely to create a big source of uncertainty for the US economic recovery.

The author is a research fellow with Beijing-based think tank Pangoal. 

bizopinion@globaltimes.com.cn

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