Why are leading agencies slashing their forecasts for U.S. economic growth this year?

2022-04-29 0 By

Spurred by massive inventory rebuilding and cash-rich consumers, the us economy recorded its fastest growth rate since 1984 last year, according to MarketMatrix.net.However, this situation is not expected to be repeated in 2022.In fact, the year started with almost no growth at all, as Wall Street economists downgraded their gross domestic product forecasts due to a wave of Omicron variants and a waning of fiscal stimulus.Add to that the Withdrawal of the Federal Reserve from the fastest policy delivery in its history, and suddenly things have changed dramatically.The Atlanta Fed’s GDPNow measure now tracks first-quarter GDP growth of just 0.1%.Joseph Lavorgna, chief economist for the Americas at Natixis and former chief economist for the NATIONAL Economic Council under former US President Donald Trump, said: “The economy is slowing and declining.It’s not a recession, but there will be one if the Fed tries to be too aggressive.”GDP recorded an impressive 6.9% growth in the fourth quarter of 2021, lifting the annual growth rate to 5.7%.The economy shrank 3.4 percent in 2020, the shortest but deepest recession on record.But the way forward is less certain.The bulk of fourth-quarter growth came from inventory rebuilding, which contributed 4.9 percentage points, or 71 per cent of total growth.Almost all of the 2.3 per cent growth in the third quarter came from inventories.Meanwhile, the Institute for Supply Management’s manufacturing survey on Tuesday showed growth in new orders held up but slowed sharply.All in all, this is not a sign of sustained growth.”Inventories are roughly back to where they should be,” said Mark Zandi, chief economist at Moody’s Analytics.Fiscal and monetary policy support, then, is diminishing.So, yes, growth is going to be very weak starting this year.”Wall Street economists have been cutting growth forecasts.Goldman Sachs cut its first-quarter GDP growth forecast to 0.5 per cent from 2 per cent.It also lowered its full-year forecast to 3.2 per cent, well below the current consensus of 3.8 per cent.”Growth could slow abruptly in 2022 as fiscal support fades and the near-term spread of the virus puts pressure on spending on services and prolongates supply chain disruptions,” the bank’s economist Ronnie Walker said in a note to clients.Growth in the first quarter is likely to be particularly weak as fiscal drag will accompany Omicron’s hit.”Similarly, Bank of America cut its first-quarter growth from 4 per cent to 1 per cent and cut its full-year forecast from 4 per cent to 3.6 per cent, saying the risks to its forecast appeared tilted to the downside.Ethan Harris, the bank’s head of global economic research, cited four reasons for the gloomy outlook: Omicron, inventory drawdowns, reduced fiscal support and Fed tightening.”We now expect the fiscal package to be about half the size of the Build Back Better Act, with less of the prior fiscal stimulus,” he wrote.We think it will add only 15-20 basis points to 2022 growth compared to our previous estimate of 50 basis points.In our view, the risk of negative q1 growth is significant.”Meanwhile, the bank expects the Fed to raise interest rates seven times this year by 25 basis points.Wall Street expects five rate hikes this year, according to CME’s FedWatch tool, with about a 31 per cent chance of six.Moody’s Mr Zandi said the Fed needed to be careful not to go too far in fighting inflation, which has risen to its highest level in nearly 40 years.”They run the risk of getting ahead of themselves and overdoing it,” he said.They work very hard here.Market expectations are for five rate hikes.Six will also be discussed.Given the growing headwinds in the economy, it feels like this may have gone too far.”————— Market Matrix: Futures & Derivatives Trading Research Center – Find your best trading opportunities from our selected stream of top news sources like Bloomberg/Reuters /CNBC/WSJ!+++ Top investment banks macro/stock index/crude oil/gold research report and strategy!+++ Economic data/industry report in-depth interpretation!+++ Follow ++ View all resources