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US economy shifting to new growth path, subject to shocks

May 22, 2019

The US economy is transitioning to a new growth path, and it is subject to production-level shocks that could derail its momentum, according to an economic forecast released today by Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s Robinson College of Business.

Dhawan forecast US gross domestic product will moderate to 2.6% growth this year from 2.9% in 2018. Going forward, he forecast growth will moderate further to 1.9% in 2020 and 2021.

However, Dhawan cautioned that shocks “become a problem when the economy transitions to a new equilibrium, as it is now.”

One such shock is the indefinite grounding of all Boeing 737 MAX planes; it’s bad news for part suppliers, especially amid already weakened corporate capital expenditures over the past six months. Another shock is stress on the world’s oil supply from geopolitical issues such as unrest in Venezuela and US sanctions on Iranian oil exports.

Last year’s strong growth benefited from the Tax Cuts and Jobs Acts of 2017, which “provided a type of fiscal stimulus, a positive change in the investment climate and job growth one-third higher in the first half of 2018 than the normal monthly job creation pace of 2017.” However, the boost to spending fizzled out in the second half of 2018 because of stock market volatility from trade skirmishes and softening global growth.

Regarding tariffs on Chinese goods, he said “the immediate impact is minor. Future impacts, especially reduced corporate desire for investment, will not be apparent for some time.”

The US Federal Reserve Board is expected to begin rate cuts in December with a total of three by mid-2020, according to the forecast.

Dhawan is also one of the forecasters who takes part in the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters.

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