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US Economic Outlook: Q2 2019 Growth Remains Robust but Domestic Demand is Losing Momentum

June 2019

US GDP is expected to increase by 2.1-2.7% in 2019 and by 1.3-2.1% in 2020. The preliminary estimate for Q1 2019 GDP growth was better than expected at a 3.2% annualised quarterly rate. However, consumption growth, the main driver of the US economy, has slowed in the first quarter of 2019 and consumer sentiment has declined. Stock and corporate bond markets have recovered from the turbulence at the end of 2018, but they remain vulnerable to rising trade tensions and uncertainty.

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Growth remains robust, but domestic demand is losing momentum

US GDP is expected to increase by 2.1-2.7% in 2019 and by 1.3-2.1% in 2020. Baseline Forecast Probability: 20-30% over a one-year horizon.

The preliminary estimate for Q1 2019 GDP growth was better than expected at a 3.2% annualised quarterly rate. However, domestic demand increased at an annualised rate of just 1.4% (excluding inventories and exports), and the preliminary estimates have usually been subject to large revisions. Output growth in Q4 2018 slowed down to a less than 2% annualised rate (using the more robust gross domestic output measure), suggesting the positive 2018 economic momentum may be ending.

Consumption growth, the main driver of the US economy, has slowed down in the first quarter of 2019 and consumer sentiment has declined (though remaining above the historical average).

Stock and corporate bond markets have recovered from the turbulence at the end of 2018, but they remain vulnerable to growing trade tensions between the US and the rest of the world and falling corporate earnings growth. On a positive note, the Federal Reserve has loosened its monetary policy stance in recent meetings, with short-term interest rates now likely to stay put for the rest of 2019.

Baseline Outlook

Growth remains robust, but domestic demand is losing momentum

Forecast Risks

Global downturn risks have declined, trade war with China has escalated
US-China all-out trade war risk has increased
Most likely pessimistic and optimistic scenarios

Consumer sentiment and consumption

Consumer sentiment has declined but it remains above average
Consumption growth has declined despite strong employment growth

Financial conditions and monetary policy

Financial markets have rebounded from end of 2018 losses
Fed has substantially loosened monetary policy

Labour markets and business investment

Weak worker compensation growth despite low unemployment rate
Business investment growth has slowed down but remains strong
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