BRUSSELS: The two best performers among the Group of Seven economies in the third quarter almost certainly took separate paths in the fourth, as Britain suffered a Brexit reality check, while the United States sailed on despite the trade war it has sparked.
The world’s largest economy is expected to have grown by an annualised 2.6 percent in the final three months of 2018. Even if that is down from the 3.4 percent of the third quarter, it is still a healthy clip.
A first estimate should have been released by now, but the US Bureau of Economic Analysis said on Thursday the release had been pushed back to Feb. 28 due to the government shutdown.
Forecasts though equate to a quarterly 0.6 percent, triple the growth rate of the euro zone in the same period. Growth in China, while far higher, cooled to a 28-year low in 2018. Japan, the world’s third largest economy has yo-yoed between contraction and expansion throughout the year, with a 0.4 percent growth reading seen for Thursday.
Harm Bandholz, chief US economist at UniCredit, says that despite unstable politics in Washington, two factors explain why the US economy is one of very few holding up well in recent months – massive stimulus mainly from tax cuts and the fact that it is relatively closed and not dependent on foreign trade.
In the very short term, the government shutdown, which could resume next Friday, and the polar vortex of late January could rein in first quarter expansion.
Longer term though, even the Federal Reserve has become more hesitant, signalling last month at least a pause to its monetary policy tightening due to a cloudier outlook and growing risks.
The labour market is still glowing, but the impact of tax cuts will fade and the nation will hit a debt ceiling in March, which could ultimately lead to a debt default.
UniCredit’s Bandholz says slower growth could expose the very high debt of corporates, weakening investment spending and possibly spilling over into other parts of the economy.
“All these factors combined will be enough to push the US economy into a mild recession in 2020,” he said.
For now, US strength in the face of economic slowdowns elsewhere may well be helping President Donald Trump’s trade push.
Trump said on Thursday he did not plan to meet Chinese President Xi Jinping before a March 1 deadline set by the two countries to achieve a trade deal.
Other countries, notably Germany, are awaiting a Commerce Department report due Feb. 17 on whether auto imports are security risk. Bank of America Merrill Lynch wrote on Friday that this should not in the end lead to tariffs, although believes “some brinkmanship” is likely. – Reuters
