Analysts at Nomura expect the US economy to continue to grow significantly above potential in 2018 and 2019, supported by stimulative fiscal policy, before growth decelerates towards potential over 2019 and into 2020.
Key Quotes
“Job gains remain well above the long-term sustainable pace and will likely continue to put downward pressure on the unemployment rate through 2019 before tighter monetary policy and financial conditions eventually slow employment growth. However, we expect slow productivity growth to persist, held down, in part, by structural declines in underlying business dynamism, limiting wage growth.”
“Inflation: Transitory factors that that held down inflation in 2017 have largely abated. For 2018-20, we expect core inflation to pick up gradually as labor markets tighten and the economy moves towards potential. Core PCE inflation may pick up slightly faster than core CPI as healthcare service inflation could accelerate while rent inflation gradually slows. With upside risk to healthcare prices as well as expected further labor market tightening, we expect core PCE inflation to reach 2.4% in Q4 2020.”
“Policy: Facing strong momentum in aggregate demand, tightening labor markets, and inflation at the 2% symmetric target, we expect the Fed to hike two more times in 2018 and two times in 2019 before taking a pause through 2020. With our neutral rate estimate between 2-2.25%, we believe monetary policy will remain in a slightly restrictive stance for some time, tightening financial conditions. We think the roll-off of the balance sheet will continue to exert upward pressure on long-term interest rates, as will the large increase in the federal budget deficit.”
“Risks: Financial conditions remain accommodative but recent market activity, and history, suggest they can turn quickly. In our view, protectionist US trade policy remains a key risk as US-China tariffs take effect and the US moves forward with an investigation into imports of autos and auto parts. In addition, waning fiscal stimulus in 2019, with the possibility of a fiscal cliff in 2020, could create market angst.”
Source: FXSTREET

China posted second-quarter GDP growth of 6.7 percent from a year ago, slightly lower than 6.8 percent in the first quarter of 2018 as Beijing has been cracking down on risky credit amid escalating trade tensions with the U.S.

The official reading was in line with expectations from analysts polled by Reuters.

The headline figure was no surprise as any impact from current U.S.-China trade scuffles will only factor in the second half of the year, said Fraser Howie, an independent analyst.

There may be a bumpy ride ahead as China’s economy is not impervious to external threats, he added.

“China’s economy can be knocked, and when it comes to trade, it influences a lot of sectors, a lot of jobs associated with it. Net export sheds are a small percent of GDP but your brain is only 3 percent of your body mass [and] losing 3 percent can be very important to you,” Howie told CNBC’s “Street Signs.”

It’s a delicate balancing act.

Trade tensions between China and the U.S. have weighed on sentiment, particularly as the property market is slowing in first-tier cities such as Beijing and Shanghai, said Hao Zhou, senior emerging market economist for Asia at Commerzbank.

“I think it’s a little bit tricky at this moment. On the one hand, China commits to financial deleveraging. On the other hand, China sees growth moderation and growth slowdown is a risk for the economy as well,” Zhou said on “The Rundown.”

Fixed asset investment growth for the first half of 2018 was a record low at 6.0 percent from a year ago, while industrial output for June matched the the slowest growth rate in over two years at 6.0 percent, according to Reuters’ records.

The situation poses a policy dilemma as the China needs to implement relatively tight monetary policy to force financial deleveraging. However, it also needs easier monetary conditions to support growth.

The People’s Bank of China has already cut banks’ reserve requirements three times this year.

As the risks from the U.S.-China trade war will be a drag on overall growth in the next few years if China’s trade surplus against the U.S. narrows substantially, Beijing is likely to continue easing monetary policy going forward, Zhou said. That is particularly since domestic consumption will slow on escalating trade tensions.

Although Beijing’s official GDP figures are closely watched as an indicator of the health of the world’s second-largest economy, many outside experts have long expressed skepticism about the veracity of China’s reports.

Source: CNBC

The Indian economy is at a “take off” stage and is expected to be the world’s third largest by 2030 with GDP worth USD 10 trillion, Economic Affairs Secretary Subhash Chandra Garg said.

“Good days are ahead and lot of good work is happening in the economy. The economy is on a stage of take off where Indians can legitimately hold their heads high,” he said here.

In the first 40 years of independence, the country hardly grew at 3.5 per cent, and today 7-8 per cent is the norm, Garg said at a function to mark the platinum jubilee celebrations of the Institute of Cost Accountants of India.

“By 2030, we can legitimately expect to be a USD 10 trillion economy. That is the challenge. That is also the opportunity,” he said.

“Eight per cent growth is very much achievable… If we keep that… we can look forward to be an Indian economy of USD 10 trillion which would be the third largest economy in the world,” Garg said.

His comments come on the heels of latest World Bank data showing that India has emerged as the sixth largest economy globally, surpassing France, in 2017.

In 2017, it became the sixth largest economy with a Gross Domestic Product (GDP) of USD 2.59 trillion, relegating France to the seventh position, according to the data.

“We expect the Indian economy to be a USD 1 trillion digital economy by 2022 and going forward… possibly by 2030, the digital economy would be half of the total economy,” Garg said.

India’s economy grew at a seven-quarter high of 7.7 per cent in the three months ended March, helped by higher government spending and investments.

Source: PTI