Analysts have revised their forecasts for GDP growth following new macro data which confirmed the robustness of the American economy. Expectations are for interest rates around 1.5% already by the end of the next two years and for a rebound in gross domestic product between 2025 and 2027.
Morningstar has raised its US GDP growth forecast in 2023 to 1.6% (from +1.4% estimated last May), in response to the positive macro data published recently relating to the number of jobs and the construction of new housing and non-residential buildings. At the same time, it reduced its estimates for the following two years, aware that the signs of strength shown by the American economy will allow the Federal Reserve to make the final adjustments to interest rates which will end up having a negative impact on GDP growth.
In the short term, inflation is the key
In the short term, Morningstar analysts’ expectations for the growth of the American economy are higher than those of the consensus and reflect greater optimism about the evolution of inflation in the coming years.
“We are convinced that inflation will fall faster than the market expects, as most of the sources that produced the recent surge in the consumer price index, such as energy, automobiles and other durable goods, will reduce their impact in the coming years producing prolonged deflationary pressure,” says Preston Caldwell, Chief U.S. Morningstar Economist.
Inflation growth did not go beyond 4.1% in May (year/year), showing a sharp slowdown compared to the peak of 8.9% recorded in June last year, due to the contraction in energy costs. Furthermore, analysts say, the fact that inflation has already fallen so much in the face of economic growth that has remained resilient bodes well for the possibility that the Fed will be able to bring inflation back to its 2% target without any particular damage to the country’s economy.
In the long term, work, supply chain and productivity come into play
If we take into consideration a longer time frame, from now to 2027, Morningstar expects an average growth of the economy of 2.34%, against the +1.52% estimated by the market consensus, due to greater optimism about the on the supply chain, labor supply and productivity front.
The New York Fed’s Global Supply Chain Pressure Index, which is considered the litmus test of the health of supply chains, shows that the supply chain is more flexible than ever. And this, analysts say, should help the price of goods to decline steadily in the coming years.
On the labor market front, the number of employed people has grown on average by 2.2% in the last three months. This growth rate is compatible with real GDP growth of between 3% and 3.5%, much higher than the +1.6% expected in 2023 (based on Morningstar estimates), which demonstrates the good state of health of the American labor market.
Labor productivity, however, which fell by 1.1% in 2022, is seen increasing by 0.2% this year and based on analysts’ estimates it should rise on average by 1.3% in the next few years. five years.
“In addition to considerations on the supply chain, the labor market and productivity, there are also those on the future trend of interest rates. A new increase in July now seems certain, but the American Central Bank should start cutting the cost of money as early as February 2024 and our expectations are for a fall in the federal fund rate to around 1.5% already in the middle 2025. This should boost not only the real estate market, but all those sectors heavily dependent on bank loans,” concludes Caldwell.
