US economic growth momentum softening
Thursday, October 31, 2019
US economists believe growth could slow further in the current October-December quarter and into next year, given all the economic risks.
“We see GDP momentum softening ... as global headwinds, lingering policy uncertainty and squeezed profits erode employment growth and confidence,” said Gregory Daco, chief U.S. economist at Oxford Economics.
Growth this year is forecast to come in around 2.3 percent, down from 2.9 percent last year. Many analysts are forecasting a further slowdown to GDP growth of around 1.5 percent in 2020. That would be a disappointment to President Donald Trump, who has repeatedly proclaimed that his economic policies featuring tax cuts, deregulation and tough enforcement of trade agreements would lift the country out of the doldrums of the slowest economic expansion in the post World War II period.
Growth last year was boosted by Trump’s US$1.5 billion tax cut passed in 2017 and billions of dollars in extra government spending approved last year.
Without that support, economists had forecast a slowdown this year. They also say that Trump’s trade war with China, by disrupting supply chains and hurting business confidence, will shave about a half-percentage point from the already slower GDP figure.
Trump, however, has blamed the Federal Reserve for the weaker growth, calling Fed officials “boneheads” for raising rates four times last year and being slow to cut rates this year.
The central bank on Wednesday cut its key policy rate for a third time this year as an added insurance policy against a recession. While the Fed indicated that it did not plan to cut rates again unless the economic outlook worsens further, many economists believe a slowing economy will force it to reduce rates again, maybe as soon as its next meeting in December.
Most analysts think the current record-long expansion, now in its 11th year, will avoid a downturn in 2020, a presidential election year, but growth will be far below the 3 percent Trump has promised to achieve.
Mark Zandi, chief economist at Moody’s Analytics, said he does not have a recession in his forecast, but a downturn can’t be ruled out, especially if the United States and China do not achieve at least a cease-fire that keeps further tariff hikes from going into effect. That would slow GDP growth even further.
“President Trump’s trade war is doing significant damage to the economy,” Zandi said. “If the economy slows even more than I am anticipating, I think that could ignite a recession.”-AP