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10 Nov 2022

International Economy

US 2022 midterm election results set to affect passage of bills in Congress, but unlikely to alter 2023 US economic outlook (Current Issue No.3357)


   Preliminary voting results of the US midterm elections, November 8, 2022, show that Republicans have inched closer to a House majority, while control of the Senate hinges on a few tight races. Regardless of whether Democrats can still hold a majority in the Senate, or not when the official voting results are to be announced after December 6, 2022, given that votes for the remaining four seats are being counted (as of November 10, 2022, both parties had the same number  of seats 48:48), the fact that Democrats have lost their majority in the House of Representatives in the 2022 midterm elections could affect Joe Biden's administration over the next two years.
•    If Republicans cannot secure a House majority and both parties have more or less the same number of seats in the Senate, such a scenario may present an obstacle to the passage of important bills of both parties. Even as Republicans can successfully pass the legislation through Congress, President Joe Biden in the end has the right to overturn or veto the other party's bills, thanks to the US political mechanisms. Additionally, if the House insists on passing the bill, it will require two-thirds of the support of both houses, which is impossible under current circumstances. Even though the Democratic Party can successfully secure a Senate majority, their bills proposed to Congress may be thwarted by Republicans in the lower house anyway.
•    "Raising the “debt ceiling" is a political bargaining tool for Republicans. Therefore, President Joe Biden’s administration must have a plan in place to avoid defaults and prevent a government shutdown. As the two parties have a different stance towards the debt ceiling, there is a possibility that related negotiations will be prolonged beyond the debt extension deadline. As a result, public operations might be stalled as seen in the past although it may not take long for both parties to reach a deal as they may not want to lose their support from government officials. Moreover, the government may eventually have to cut some expenses to ensure that the debt ceiling is within the level set by Republicans.
•    As American voters will determine the country’s policy directions over the next two years, both parties have been accelerating their efforts to promote various policies to win more votes during the lead up to the 2024 presidential election. Republicans will likely use their advantage in the lower house to thwart Joe Biden's policies and undermine the government's popularity garnered from economic and social welfare measures. Additionally, Republicans may continue to promote populist initiatives on issues of social interest to bolster their electoral base in the future.
•    US security policy will not change significantly, especially towards China. Regarding military expenses and financial assistance for Ukraine, although Republicans have a plan in place to cut related expenses, the government may be pressured somewhat as such expenditures are for the country’s benefit.
In spite of this, it is expected that the US midterm election results will not change the US economic outlook over the short-term, as it is being affected by the Fed's aggressive interest rate hikes. KResearch expects that the US economy will head into a technical recession in 2023. Its 2023 GDP growth will likely remain static, pressuring global trade, including Thailand's exports to the US. Thai shipments to the US therefore may record only single-digit growth of 1.1 percent at roughly USD50 billion during 2023.

International Economy