This is the first in a 7-part update series on FSG’s 2017 Events to Watch. Additional updates can be found below:
In December 2016 FSG released the report Events to Watch for 2017, which profiled what our analysts believe are the downside and upside disruptors that multinational companies should evaluate to ensure that strategic plans remain resilient. As part of a series of blogposts we seek to review and update FSG’s view on the likelihood, impact and signposts to monitor for each of the seven disruptors we profiled in the report. The event for which we have made the most significant revision is the lone positive disruptor – a “US Infrastructure Boom.”
Events to Watch for 2017: US Infrastructure Boom
While not our base-case forecast, FSG believed that President Trump would be able to attempt to obtain support from Republicans and a significant share of Democrats for a $1 trillion 10-year infrastructure program that includes significant direct spending on productive but commercially unprofitable projects. Given the overwhelming imperative to improve economic growth, which has settled at a 2% average rate over the last decade, the need to push through a major infrastructure package and demonstrate bipartisan achievements seemed self-evident.
Event’s Impact on Market Potential and Operating Environment
- Fiscal stimulus effect: A large-scale infrastructure plan would be felt in direct federal spending and through grants to state and local agencies
- Improved business sentiment and capex: A major infrastructure push would have had a direct effect on construction, logistics, and manufacturing, both in the US and for companies that sell to the US market. There would also have been an indirect boost to business sentiment and investment appetite among US companies
- Incremental improvements to consumer spending: Heightened infrastructure spending would have led to a major boost to employment in targeted areas of the United States, while boosting wages in impacted sector
- Reduced supply chain costs: Long-term clarity about infrastructure improvement would allow supply-chain planning based on steadily more efficient inland transportation and ports, and lower local taxes and tolls to fund deferred infrastructure maintenance
Signposts to Monitor Revisions
Despite the sizable economic dividends from a major bipartisan infrastructure spending bill, the signposts FSG has been monitoring currently indicate much more limited prospects for the “US Infrastructure Boom” event:
- Case-by-case bipartisanship: The Trump administration’s efforts through executive actions and through its failed attempt to repeal and replace the Affordable Care Act have soured relations with the Democratic opposition, while growing opposition to anything less than total opposition to the Trump administration within the Democratic base leaves low prospects for any move toward bipartisan agreements
- Trump’s popularity: While President Trump retains support within his political base, his approval ratings have remained below his disapproval ratings throughout much of his first few months as president. This represents the worst performance for a newly elected president ever. Unfortunately for his growth agenda, this leaves him with limited political capital to push through his agenda with support from senators and congressmen in competitive and Republican-aligned states and districts
FSG is revising down to 10% from 35% probability the prospects for a major infrastructure spending bill gaining passage in 2017. A significant shift in President Trump’s standing in the electorate and in congress, as well as a more concerted effort to attain bipartisan support (while offering major concessions on other policies such as on healthcare and tax reform) could improve the prospects for a landmark infrastructure bill, but this remains highly unlikely.
Actions to Take
While the likelihood for this upside event are more limited than before, multinationals should continue to consider how they would take advantage if more favorable conditions were to appear over the coming months. FSG’ s Events to Watch for 2017 report provides in-depth scenarios, expected impact on business performance and operations, as well as recommended frameworks for contingency planning and effective market monitoring. FSG clients can access the report here.
Not an FSG client? Learn more about the report here.