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

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.