In order to "detoxify," the USA economy is undergoing a painful but necessary transformation: moving from an over-reliance on government spending to more productive growth in the private sector. The latest research report by Bank of America points out the driving forces behind the reforms in the USA:

The USA economy's dependence on the government has reached an unprecedented level, with 85% of job growth coming from the government, government spending accounting for one-third of GDP, and a record budget deficit of 6-7% (excluding times of crisis and war).

Jared Woodard, head of the Bank of America Research Investment Committee, revealed the truth behind the apparent prosperity of the USA economy in recent years in the latest report:

"The growth of the USA economy has relied on unsustainable government support and protectionist policies. Trump is facing a high-risk gamble in trying to shift the USA economy from an inefficient, debt-driven government growth model to an efficient, self-funded private sector growth model."

The painful transition from government-led growth to private sector growth.

Bank of America data shows that a year ago, 85% of the job market growth in the USA came from the government and government-dependent sectors such as Medical and Education. Although this figure has now dropped to 70%, it remains at an unhealthily high level.

What is more concerning is that in 2024, government spending will account for one-third of GDP, reaching a historical high outside of war or crisis periods. This increase is supported by a 6-7% budget deficit, which is exceptionally dangerous in peacetime.

The analysis from Bank of America believes that shifting the USA economy from government-led to the private sector will be a challenging but necessary process:

"The global transition from big government to free markets may be fraught with risks, but given the enormous deficits and debt burdens, this transition seems unavoidable."

Moreover, this shift is not unique to the USA. According to the Bank of America report, the transition from the public sector to the private sector is happening globally:

• In Japan, accelerated corporate reforms (buybacks and capital expenditures) are releasing 206 trillion yen (33% of GDP) to support the stock market rebound this spring.

• In Germany, Chancellor Merz is prepared to lift the debt brake to fund 1 trillion euros of defense and infrastructure spending.

• In Argentina, fiscal cuts worth 5% of GDP have balanced the budget, reducing inflation by 25 percentage points and driving the stock market up.

Painful but necessary: long-term benefits of the market economy restart.

Bank of America acknowledges that the acceleration of private sector job growth, relocation of government workers, widespread growth in corporate profits, and the finding of a new balance in Global trade may take time, with effects not appearing overnight. This aligns with the views of Howard Lutnick, a member of the Trump economic team, who stated that Americans may not feel the effects of Trump's economic policies until the fourth quarter of 2025.

Despite the short-term pain, Bank of America's conclusion remains optimistic. Analysts state:

"The productivity gains brought about by the economic restart of the market may outweigh the risks, whereas the risks of maintaining the current state of debt-financed, sluggish, and narrow economic growth are quite serious."

Editor/ping