CECL 2024 Q4 scenarios: A land of contrasts – regional dynamics in the US economy.

Our short-term outlook for the global economy has a seen a small upwards revision due to the expected loosening of US fiscal policy by the new Trump administration. As a result, clients responding to our latest Global Risk Survey remain confident in the strength of the US economy. More than 1-in-4 respondents now expect resilient US growth in the year ahead – more than twice the level prior to the US elections. However, the Trump administration’s plans to impose large-scale protectionist measures and cut down on immigration will hinder the economy’s medium-term outlook. Regional dynamics will play a key role in determining how federal policy changes affect different states.

As the second Trump administration unfolds, geopolitical tensions and volatility in global trade flows are set to rise yet again. In such periods of heightened uncertainty, highly open and export-intensive states might be particularly vulnerable to large fluctuations in growth. For instance, a state like California, with its high reliance on exports and large gig-economy is particularly sensitive to global instability.

Our CECL scenarios capture these state-level nuances in a granular way by leveraging nation-wide scenario projections and combining them with state and region-specific dynamics such as demographics, sectoral breakdowns, and policy risks to generate results that are consistent at the state and metro level.

Our CECL downside scenario models a concerted global slowdown, which triggers a significant reduction in global trade flows and large sell-off in asset prices. Therefore, even though our downside scenario does not assume specific risk themes or policy changes, it captures the risks from the anticipated tariff policies of the new US administration.

Since our CECL scenarios are developed from uncertainty distributions which are based on three decades of forecast errors, they inherently capture the broader risk spectrum associated with a second Trump presidency. For example, our distributions capture important periods of heightened economic volatility such as the Global Financial Crisis, the Covid-19 pandemic, as well as the volatility from the first Trump presidency.

We construct the alternative scenarios using our industry-leading Global Economic Model. Through our US States and Metro model, we also generate consistent projections for 50 states, 382 metropolitan areas, 31 metro divisions and the District of Columbia. Our approach therefore provides our clients with a robust and objective methodology to calculating their expected credit losses and helps them navigate risks within the US economy.

Find out more about our IFRS 9, CECL and US States and Metro Service.

For more insights on the 2024 US Presidential Election, click here.

To discover how we can support you to navigate uncertainty with confidence, request a free trial.

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Sai Deeksha Palepu

Senior Economist

+44 203 910 8052

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Sai Deeksha Palepu

Senior Economist

London, United Kingdom

Deeksha is a Senior Economist within the Scenarios, Stress Testing and Modelling team, with a particular focus on our IFRS 9 service. She also works on stress tests, climate scenarios and bespoke modelling projects for clients. Deeksha holds a First Class Honours in Economics from the University of Bath and an MSc in Economics from University College London.