Thought of the week / 5th March
After a long wait, the shutdown-delayed 4Q GDP was reported last week. It showed the U.S. economy grew 2.6%, which beat expectations but signalled a slowdown from the previous quarter. Over 2018 as a whole, the economy grew at a solid 2.9% rate, up from 2017’s 2.2% pace. This week’s chart highlights what contributed to this pickup in growth. Consumption and business fixed investment were the main contributors at 1.8% and 0.9%, respectively. This was a step up from the previous year’s 1.7% and 0.7%, helped by the tax stimulus. In addition, housing’s contribution was close to zero, compared to last year’s 0.1%, reflecting the dampening effect of higher interest rates. Lastly, net exports detracted -0.2%, improved from the previous year’s -0.3%, but still showing that trade tensions did not improve the trade deficit as desired. Looking forward to this year, we expect a further downshift to a pace of 2.0%-2.5% growth, with some softening in the first quarter due to the effects of the government shutdown and the build-up of inventories that took place in the second half of 2018.