|
U.S. Outlook Special Report: Trump’s First Year
We interviewed 95 world renowned economic analysts for their This special report containing insight and analysis on key |
Will U.S. economic growth in 2018 continue at the strong pace seen in 2017?
Simona Strizevska, Economist, CBL Asset Management
Growth will speed up.
“Current corporate and household optimism is consisted with roughly 3.0% yoy GDP growth. Although moderate wage growth somewhat suppresses acceleration in household spending, stronger capex growth, coupled with synchronised global growth and recently approved tax reform, is about to support and invigorate growth during 2018.”
Philip Economides, Research Assistant, Economic and Social Research Institute
Growth will be largely unchanged.
“The coming fiscal stimulus through tax cuts and high federal spending should only add to the already booming cycle of the US economy. Unfortunately given the late stage at which the business cycle currently exists, it seems America has played its cards of fiscal stimulus far too early and may be unable to tackle any returns to bust in the next few years wherein stimulus would be far more desirable.
“Additionally, the FED is likely to raise interest rates to 2.25% by the end of 2018, likely through three incremental increases. This should stave off some of the excessive overheating the fiscal stimulus may deliver.
“Given the disproportionate nature of these tax cuts however, there should not be a major surge in consumption levels. The major of individuals will not experience must change initially and will actually incur a net loss in further years unless additional amendments are made later on. Much of the welfare gains in tax have been targeted towards the most wealthy, and as such the already ballooning stock market rally should see asset prices rise even further. As such the real economy may not be as responsive to this initial fiscal stimulus as conventional wisdom would normally suggest. ”
José Francisco Lima Gonçalves, Chief economist, Banco Fator S A
Growth will be largely unchanged.
“First of all, investment decisions by non financial enterprises shall be postponed until the expected effects of the fiscal changes are stablished. Thus, investments shall not pull activity in a relevant way. Second, household consumption shall not accelerate for the aggregate income is growing slowly due to low wage employment at the margin. Third, govemnt expending is expected to contract. Fourth, external sector contribution should suffer with the expected dolar strenghtening. The risks are pointed to a downside.”
Daniel Solomon, Economist, Euromonitor International
Growth will speed up moderate.
“Fiscal stimulus effects and some momentum in capex and consumer spending will lead to slightly higher annual growth.”
Juan A. Castañer, Senior Econmist, Estudios Técnicos, Inc.
Growth will speed up.
“Business investment should increase, with personal consumption expenditures on the rise, too, as their confidence is high, and financial conditions are easy.”
Helcio Takeda, Managing Director, Head of Research, Pezco Economics
Growth will be largely unchanged.
Although tax bill represents a non-negligible stimuli, we think output will be constrained by a financial environment relatively tighter than previous year. We think it is a non negligible stimuli in the short term, but a relatively strong limitation to the long term growth. Maybe, this will put some limitation in the short term expected growth.”
Vincent J. Truglia, Board member (ACRA); Senior Advisor (KCPFM), ACRA and the Kazarian Center for Public Management
Growth will speed up.
“The influence of the new tax law on business investment will be significant. In addition, most consumers will see a rise in their after-tax income.”
James Knightley, Chief international Economist, ING
Growth will speed up.
“Strong domestic momentum. Tax cuts may at the margin support additional consumer spending & investment. Stronger global demand – the 10% fall in USD since Trump’s inauguration mean the U.S. is in a great position to benefit.”
Jörg Angelé Raiffeisen, Senior Economist, Bank International AG
Growth will be largely unchanged.
In 2017 growth profitted especially from the rebound of oilprices. This effect will fade out in 2018. However, the tax reform will bring som positive stimulus instead.This should keep real GDP growth on a 2.5% qoq ann. track. Labour shortages will curb growth.”
De Moura Fernandes, Economist, Coface
Growth will be largely unchanged.
Tax reform will delay the slowdown in growth. Growth is expected to remain robust in 2018, mainly because of acceleration in company investments. On the other hand, growth in household consumption is likely to slow.”
What is your analysis on the recently-approved tax reform?
Simona Strizevska, Economist, CBL Asset Management
“Tax reform is likely to give positive impulse to US GDP growth in the coming years, with somewhat larger positive impact felt in 2019, when households will fill their tax reports. According to our estimates, tax reform is about to add roughly 0.25 pp to 2018 GDP growth and 0.4 pp to 2019 GDP growth. While it is thought to boost corporate earnings and provide incentives for capex, it may negatively affect housing market activity due to changes in personal deductions.”
Philip Economides, Research Assistant, Economic and Social Research Institute (Ireland)
“The recently-approved tax reform is a poorly timed, poorly distributed mistake propelled by political agendas rather than economic rationale. It plays cards meant to be conserved until an economic downturn. It also extracts welfare from the most vulnerable of society and will act as a major contributor towards increasing levels of income inequality in the United States.”
Oleksandr Valchyshen, Head of research, ICU
“It misses key ingredients that could spur growth. Fed budget deficit is okay, while pump priming or trickle down strategy is wrong.”
Moody’s Analytics
“It impacts the near-term economic outlook, adding 0.4 of a percentage point to GDP growth in 2018 and 0.2 percentage points to 2019. However, it will lead to a fiscal policy hangover and meaningfully weaker growth at the start of the next decade. Longer run, the tax cuts will add little to the economy but will add significantly to the government’s deficits and debt load and potentially limit fiscal policy’s ability to address the next economic downtrun.”
José Francisco Lima Gonçalves, Chief economist, Banco Fator S A
“Still preliminary. The main point is that less taxes on enterprises doen’t mean more investments or hiring. Second, one sholud consider the effect of a stronger dolar on net exports. Third, it’s not an exaggeration to consider the chance of a more tight monetary stance by the FOMC.”
Ryan Connelly, Senior Analyst, Global Economics, Frontier Strategy Group
“Though there is likely to be a real boost to consumption and investment activity in 2018-2019, the tax bill doesn’t change our medium/long term forecasts. The combination of the lower corporate tax rate and the 5-year period for 100% deductibility of investments creates incentives for MNCs to increase US investment activity – especially given the ongoing concerns about US protectionism. Consumption will increase alongside the reduction in income taxes, especially for the bottom two quintiles.
“The most difficult elements to model are accounting impact to real GDP from the incentives to reduce off-shore profit shifting. If IP assets are repatriated, the ‘stock’ of overseas earnings should temporarily bump investment and real gdp. Similarly, the ‘flow’ of profit shifting should slow, which would be recorded in lower imports and higher exports. ”
Daniel Solomon, Economist, Euromonitor International
“The annual tax cuts represent on net for around 0.7 of GDP at end of 2017(after accounting for end of various exemptions and other de facto tax increases). Baseline impact using a fiscal multiplier of around 0.5 is modest at around 0.1 -0.3 percent higher annual growth in 2018-2019. This is also in line with JCT estimates of the long-term impact of less than 0.1 percentage points annually over 10 years.”
Helcio Takeda, Managing Director, Head of Research, Pezco Economics
“We think it is a non negligible stimuli in the short term, but a relatively strong limitation to the long term growth. Maybe, this will put some limitation in the short term expected growth.”
Slavena Nazarova, Economist, Crédit Agricole S.A.
It may give a slight boost to near-term investment, but it is not likely to lift the long-term growth trend by much. All in all, the tax reform might add less than 0.1 pp /year to growth over the next few years. A lower cost of capital could, in principle, boost investment. However, significant leakages (increased share buybacks or dividends) may mute the fiscal stimulus from a lower corporate tax rate.”
James Knightley, Chief international Economist, ING
“Will support confidence and may boost consumer spending marginally. Will also help to underpin equity markets given the majority of the proceeds will be spent on share buy-backs, special dividends and M&A activity. it could also mean less corporate bond issuance which may help keep spreads narrow.”
Thomas Theobald, Senior Economist, Macroeconomic Policy Institute
“The allowance of immediate expensing of short-lived capital investment as well as lower corporate tax rates will boost real investment slightly, but the GDP effect will be smaller than widely expected. ”
Derek Holt, VP & Head of Capital Markets Economics, Scotiabank
It adds at best 0.1-0.2% to 2018 GDP growth and nothing thereafter. Most of the corporate reform will flow through pay-outs and buybacks. The lion’s share of the personal tax reforms are highly regressive. Entitlement reforms could further diminish this contribution.”
Factoring in the tax reform, how likely is it that Congress will pass President Trump’s long-touted infrastructure spending bill?
Philip Economides, Research Assistant, Economic and Social Research Institute (Ireland)
Unlikely.
There has been no narrative provided on how local private players are expected to contribute towards 80% of the 1 trillion dollar price tag. Whilst there are definitely benefits towards communities pooling funds together to invest into public infrastructure, the level of organization and diligence required has not been met with any significant displays of public interest. As of now the success of this plan seems unlikely given poor public approval ratings towards the President, the concept of private bodies paying for the majority of public infrastructure, and most importantly, the lack of detail laid out for this Infrastructure Plan.”
Moody’s Analytics
Unlikely.
President Trump is expected to roll out a major infrastructure plan this month and has called for at least a $1 trillion infrastructure package, though it is unknown how much of the cost would be assumed by the federal government versus states, local governments and private investors. The odds are low for such an infrastructure bill passing. Fiscal hawks in the GOP will balk at the potential increase in the deficit, and Democratic support for the president’s plan is not given.”
Ryan Connelly, Senior Analyst, Global Economics, Frontier Strategy Group
Highly unlikely.
“The Tax Bill is widely seen as adding some $1-1.5tn to the deficit over the next decade, with estimates up to $2.2tn. The House seems intent on paying for some of these revenue shortfalls by tackling entitlement reform next. In this context, is seems highly unlikely that Congressional Republicans will prioritize the sort of $1tn infrastructure bill that President Trump has been promoting. A significantly smaller bill – something in the neigborhood of $100bn – might be offered as a compromise.”
Daniel Solomon, Economist, Euromonitor International
Unlikely.
“After the tax cuts, Republican fiscal conservatives in congress will have a stronger case for spending cuts or restrictions. And democrats are likely to find enough to disagree with any GOP version of an infrastructure plan to vote following partisan lines against any Republican major legislation.”
James Knightley, Chief international Economist, ING
Likely.
“There does seem to be some bi-partisan support, but Democrats will want something in return. it is likely to be heavily watered down from the initial $1 trillion.”
Jörg Angelé Raiffeisen, Senior Economist, Bank International AG
Unlikely.
“The deficit will soar in 2018 and without cuts elsewhere GOP will not find enough support for further debt financed spending. Democrats will block cuts in non-defense spending.”
Tim Cooper, Global Economist, BMI Research
Unlikely.
“Not particularly popular among House Republicans, particularly fiscal conservatives who will oppose…thinner Senate majority with loss of Alabama seat…Democrats who might otherwise support it will refuse to vote for any such package due to midterm elections where they have a good chance of winning the House.”.
Richard Moody, Chief Economist, Regions Financial Corporation
Unlikely.
2018 is an election year and there is already such a sharp partisan divide; plus I do not believe they will be able to reach a compromise on how to fund any such bill.”
De Moura Fernandes, Economist, Coface
Unlikely.
Despite a Republican majority in both Houses of Congress, President Trump is facing a rebellion within the Republican party and will continue to experience considerable difficulties in implementing his programme.”
Derek Holt, VP & Head of Capital Markets Economics, Scotiabank
Unlikely.
The narrow window and the complexity of a significant package of infrastructure spending and private inducements make it unlikely to be achieved before mid-terms then probably re-introduce gridlock. Just look at how long it took for Canada to achieve an infrastructure bank and accelerated project prioritization, resource allocation and funding as one example of the complexities.”
Will employment growth lose steam in 2018?
Gabriel Zelpo, Chief Economist, Elypsis
“No. As the economy accelerates its growth pace, employment will also.”
Moody’s Analytics
“Job growth will moderate this year, but this is a symptom of an economy at or near full employment rather than a sign of weakness in the broader economy. Job growth averaged close to 175,000 per month last year and has decelerated since peaking in 2014. This isn’t surprising. As the labor market tightens, it becomes increasingly difficult for businesses to find qualified workers. There are solutions, including increasing workers’ pay, improving training and hiring workers who wouldn’t have been previously considered. These are all positives for the economy, but eventually labor supply constraints will develop—likely toward the end of this year.”
Ryan Connelly, Senior Analyst, Global Economics, Frontier Strategy Group
“The US is basically at full employment – the issue now is geographic discrepancies in the locations of excess labor, and locations of labor demand. I don’t see the unemployment rate changing significantly over the year, which implies that employment growth will be limited mainly to worker reshuffling and replacement.”
Daniel Solomon, Economist, Euromonitor International
“There’s still some room to run in recovering the decline in employment rate (including of prime age workers) since 2008. So employment growth could continue at decent pace in 2018.”
Helcio Takeda, Managing Director, Head of Research, Pezco Economics
“We think it will strengthen further, but at a slower pace compared to previous years.”
How do you expect changes in all major leadership positions at the Fed to influence the Bank’s policy stance?
Florian Eckert, Doctoral Researcher, KOF Swiss Economic Institute
There will be no meaningful change.
Jerome Powell’s statements have indicated that his beliefs on the future course of monetary policy is quite in line with his predecessor’s beliefs.”
Ryan Connelly, Senior Analyst, Global Economics, Frontier Strategy Group
There will be no meaningful change.
This is based on the expectation that Taylor and Goodfriend will both be appointed, and that the NY Fed will also select a candidate in line with Dudley’s views. Goodfriend is being portrayed by some as far more hawkish than his record indicates. The key signals for the FOMC will remain core pce and real wage growth.”
Daniel Solomon, Economist, Euromonitor International
There will be no meaningful change.
New Fed chairman Powell is unlikely to rock the boat or have strong opinions against his staff and other current FOMC members early on.”
Vincent J. Truglia, Board member (ACRA); Senior Advisor (KCPFM), ACRA and the Kazarian Center for Public Management
The Federal Reserve will turn more hawkish.
It is a more appropriate policy given the growth of the economy. The US is already at full-employment. In fact, there are significant shortages of people needed to fill positions.”
Gregory Daco, Head of US Economics, Oxford Economics
The Federal Reserve will turn more hawkish.
New voting regional Fed Presidents are more hawkish, inflation firming and output gap is closed.”
Derek Holt, VP & Head of Capital Markets Economics, Scotiabank
There will be no meaningful change.
Unconventional policy changes are set in stone with a well telegraphed path of reduced Treasury and MBS reinvestment barring a very large unanticipated shock and even then there is a high bar. The Congressionally mandated dual mandate is expected to be respected by the FOMC regardless of its composition.”
Are Fed officials correct in arguing financial imbalances are threatening economic growth?
Philip Economides, Research Assistant, Economic and Social Research Institute (Ireland)
“Very much so. The distortions these changes will make to the financial markets will only heighten concerns regarding the markets already historically high levels of growth. Adding more fuel to the fire via yet easier financial conditions looks undesirable.”
Moody’s Analytics
“It will be difficult for financial market conditions to be as supportive for growth this year as they were in 2017. Most measures of financial market conditions we monitor showed that they were very easy last year. For 2018, we expect weakness in equity prices, increased stock and bond market volatility, and higher interest rates. This should cause financial market conditions to be less easy, but they are unlikely to be restrictive for growth. However, any further easing in financial market conditions would be seen as unfavorable by the Fed as it would fan concerns about financial stability and make slowing the unemployment rate’s decline more difficult for the Fed. If the unemployment rate continues to drop quickly it will be difficult for the Fed to return the economy to full employment without triggering a recession.”
Ryan Connelly, Senior Analyst, Global Economics, Frontier Strategy Group
“Yes – due to the elevated degree of leverage being used to finance financial assets. NYSE margin debt is higher than it was prior to the burst of the tech bubble.
“There were some elements of the tech bubble that actually led to the sustained growth of the early 2000s – an overinvestment in certain tech assets provided cheap resources to early internet companies. At present, high stock valuations, based on current earnings, have not led to significant investment outside energy. Therefore, it may be that a sharp stock market revaluation today more impactful on the economy than the tech bubble. ”
Daniel Solomon, Economist, Euromonitor International
“There are some risks from high valuations in corporate credit and stock markets, but the US economy is more robust to a financial crisis than in 2008. However, we could see some negative impact of financial market corrections of e.g GDP growth declining closer to 1% in 2018 in an adverse scenario.”
Vincent J. Truglia, Board member (ACRA); Senior Advisor (KCPFM), ACRA and the Kazarian Center for Public Management
“Basically one would have to believe there is a possible crisis related to any such imbalances. Anything is possible, but in this case, it isn’t likely that these imbalances will significantly affect economic growth in 2018.”
Francis Genereux, Senior Economist, Desjardins Group
“Yes. And this is one reason why there will be rate hikes in 2018. But this risk is not overwhelming.”
Tim Cooper, Global Economist, BMI Research
“To some extent…overvaluation in many asset classes means the pain will be greater when the inevitable correction comes.”
William Adams, Senior Economist, The PNC Financial Services Group
“Financial imbalances are less of a concern than during the later stages of the last two expansions.”
Will the Trump administration seek a trade confrontation with China? If so, what would likely trigger it?
Mike Jakeman, Global Economist, Economist Intelligence Unit
“I expect the US to take punitive trade measures against China. A perceived lack of assistance on North Korea and Trump’s long-standing belief that China has been ripping off the US for years will be behind them.”
Janwillem Acket, Chief Economist, Julius Baer
“No, with an accelerating US economy. Yes, if the US economy stalls before November 2018.”
Ryan Connelly, Senior Analyst, Global Economics, Frontier Strategy Group
“The ability to create trade conflict rests almost entirely with the Administration – meaning Trump and his close confidants. It would be surprising if Trump did not implement at least some symbolic trade protections vis-a-vis China prior to the midterm elections.”
Harm Bandholz, Chief US Economist, UniCredit
“No meaningful trade confrontation. Just sporadic and targeted measures – mostly for the US administrtion to demonstrate ‘toughness'”
Vincent J. Truglia, Board member (ACRA); Senior Advisor (KCPFM), ACRA and the Kazarian Center for Public Management
“Once the North Korea issue is resolved, however that may turn out, the administration will then focus on China trade. It’s only a question of time.”
Tim Cooper, Global Economist, BMI Research
“Yes…no need to identify trigger, trade tensions have already begun and the White House is beginning to implement measures. Will fall short of an all-out trade war, however.”
Carlos Casanova, Economist for Asia Pacific, Coface
“Trump’s administration will not seek a trade confrontation with China, but they will continue to impose duties on Chinese products on a case-by-case basis. This will lead to worsening bilateral relations in 2018, after enjoying a relatively benign 2017. The resulting uncertainty may have negative spillovers into global financial markets.”
Gregory Daco, Head of US Economics, Oxford Economics
“The administration may feel emboldened to adopt a more protectionist stance in the wake of the fiscal stimulus win. Outright confrontation will depend on a number of factors.”
William Adams, Senior Economist, The PNC Financial Services Group
“No, the current administration is extremely unlikely to risk shocking the stock market with a trade war.”
Derek Holt, VP & Head of Capital Markets Economics, Scotiabank
“I expect most of the tensions to manifest themselves as political hyperbole and relatively minor disputes that keep the bulk of the relationship intact. China’s current account surplus sits at 1% of GDP now versus 10% a decade ago. It is in neither country’s best interests to risk China having a current account deficit that could spark capital outflows from the United States and others.”
Will Democrats take back the majority in the House of Representatives in the 2018 midterm elections?
Mike Jakeman, Global Economist, Economist Intelligence Unit
“On current trends, yes. The Democratic lead on generic ballot polling minus their disadvantage through redistricting still has Democrats ahead by enough to take back the House.”
Daniel Solomon, Economist, Euromonitor International
“It’s still close to 50/50 right now. Republicans’ popularity has declined, but the electoral map is still stacked against Democrats.”
Vincent J. Truglia, Board member (ACRA); Senior Advisor (KCPFM), ACRA and the Kazarian Center for Public Management
“The only way the Democrats take control of the House in 2018 is if large numbers of voters in New York, New Jersey and California vote out their GOP representatives. That could occur if it turns out that the tax reform bill negatively affects those high-income generally suburban voters. New restrictions on the ability of taxpayers to deduct state and local taxes from their federal taxes mainly affects people in high-taxed states.”
De Moura Fernandes, Economist, Coface
“The victory of the Democrat candidate in the Senatorial election in Alabama would seem to indicate that the Democrats will at least win back the Senate. It is unlikely that Democrats take back the majority in the House of Representatives, but possible.”
Sample Report
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.