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26.10.2018

U.S. GDP Shows Stellar Growth but Risks Abound in 2019

The U.S. economy reported a better-than-expected expansion in the third quarter, showing its best back-to-back quarter performance since 2014, but analysts warned that risks for growth abound in 2019 and the data could force a more aggressive monetary policy from the Federal Reserve.

U.S. GDP registered a 3.5% advance, beating expectations for 3.3%, on the back of strong consumer spending that contributed 2.7% to the overall economic growth figure.

“But the big question for markets, particularly in light of the recent stock market movements, is whether this is ‘as good as it gets’ for U.S. growth”, ING economists James Smith and Jonas Goltermann commented.

These experts clarified that there will be no short-term drop in growth as they expect the fourth quarter to be boosted by rebuilding and cleanup efforts from recent Hurricanes Florence and Michael.

However, they warned that they expect that growth to moderate in the coming year.

“Tighter financial conditions – driven by higher interest rates and the stronger dollar – may start to bite, while persistent trade uncertainties and fading fiscal tailwinds may also begin to restrain activity more noticeably,” they said.

Despite the warning, these economists made clear that the tight labor market with its positive impact on wage growth would likely continue into next year and they forecast a “decent 2.4% growth reading” for 2019.

“With that in mind, we expect the Federal Reserve to push ahead with its tightening cycle, hiking in December and three more times in 2019,” they concluded.

Source: Investing.com
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