US Economic Outlook: Q4 2018

Fading fiscal stimulus and worsening trade war risks

US GDP increased by almost 3% year-on-year in the last two quarters, leading to a slight upwards revision in our 2018 growth forecast.

However, trade tensions with China have escalated. In September, the US imposed 10% tariffs on another USD200 billion of imports from China, rising to a 25% tariff in 2019. The impact on 2018 GDP growth is negligible, but the higher 2019 tariffs justify a reduction of around 0.2 percentage points in the output growth forecast.

Consumer spending is still rising faster than the long-term trend, and business investment is still expanding robustly. However, the effects of the fiscal stimulus are likely to diminish in 2019-2020, and in combination with the worsening trade tensions with China, this is likely to slow down economic growth.

In our baseline forecast, 2018 US GDP growth reaches 2.7-3.0%, declining to 2.0-2.8% growth in 2019 and 1.4-2.6% growth in 2020.