We
expect
gross
domestic
product
growth
to
weaken
over
the
next
year
before
beginning
to
reaccelerate
on
the
back
of Federal
Reserve
rate
cuts.
Growth
will
be
weaker
than
normal,
but
still
positive,
thus
avoiding
a
recession.
This
period
of
weaker
growth
should
cool
off
the
economy
and
ensure
that inflation
returns
to
the
Fed’s
2%
target.
Gross
domestic
product
(GDP)
measures
the
size
of
an
economy,
specifically
the
total
value
of
goods
and
services
produced
in
a
given
period.
The
GDP
growth
rate
indicates
how
fast
the
country’s
economic
output
is
growing.
US
real
GDP
growth
accelerated
in
2023
despite
facing
the
largest
federal-funds
rate
hikes
in
four
decades.
But
the
contractionary
effects
of
Fed
rate
hikes
have
yet
to
fully
play
out,
and
this
and
other
headwinds
should
cause
growth
to
slow
in
2024
and
2025.
In
terms
of
annual
average
numbers,
we
expect
growth
to
trough
in
2025.
US
Real
GDP
Growth
(%)
Bureau
of
Economic
Analysis,
Morningstar
Data
as
of
July
10
2024
Over
2026-28,
we
expect
GDP
growth
to
rebound
at
a
brisk
rate.
But
this
shouldn’t
generate
renewed
inflationary
pressures
thanks
to
strong
supply-side
expansion.
Growth
is
Strong,
but
we
Expect
it
to
Slow
Soon
US
real
GDP
growth
averaged
a
very
strong
4.1%
in
the
second
half
of
2023
(in
quarter-over-quarter,
annualised
terms).
At
first
glance,
the
drop
in
growth
to
1.4%
in
the
first
quarter
of
2024
represents
our
forecast
slowdown
playing
out,
but
this
is
not
really
the
case
yet.
Net
exports
and
inventories
subtracted
1.1
percentage
points
from
first-quarter
GDP
growth;
these
two
categories
are
statistically
noisy,
so
quarter-to-quarter
fluctuations
aren’t
a
good
signal
of
the
underlying
trend.
Excluding
the
net
exports
and
inventories
categories,
growth
was
a
solid
2.4%,
driven
by
solid
growth
(2.5%)
in
consumption
and
a
5.3%
jump
in
private
fixed
investment.
We
can
also
observe
that
real
GDP
growth
was
up
2.8%
in
year-over-year
terms
in
the
first
quarter.
Therefore,
the
strong
trend
in
GDP
growth
continued
as
of
the
first
quarter
of
2024.
The
Atlanta
Fed’s GDPNow projects
GDP
growth
at
2.0%
for
the
second
quarter
of
2024,
reflecting
a
rebound
in
inventory
accumulation
compared
with
the
first
quarter.
Real
GDP
by
Expenditure,
%
Quarter-Over-Quarter
Growth
(Annualised)
But
while
it’s
too
early
to
say
a
genuine
slowdown
has
already
begun,
we
do
believe
a
GDP
growth
deceleration
is
coming.
We
expect
growth
to
slow
for
the
rest
of
2024
stretching
into
early
2025.
Key
factors
to
drive
slower
growth
include:
1.
The
delayed
effect
of
tight
monetary
policy,
which
includes
the
ongoing
slowdown
in
credit
growth,
affecting
commercial
real
estate
and
other
areas;
2.
Government
spending
growth
should
slow as
state
and
local
surpluses
have
been
spent
down.
Also,
federal
spending
growth
is
limited
by
budget
agreements;
3.
The
boom
in
the
building
of
manufacturing
structures
that
was
spurred
by
federal
subsidies, especially
semiconductors
and
electric
vehicles,
should
level
off;
4.
The
depletion
in
household
excess
savings should
constrain
consumption.
GDP
Growth,
Quarterly
Forecast
The
depletion
of
household
excess
savings
is
perhaps
the
most
important
factor
over
the
next
year.
The
personal
saving
rate
currently
stands
at
3.7%
(last
three-month
average),
well
below
the
prepandemic
(2019)
average
of
7.4%.
Households
have
been
dipping
into
excess
savings
accumulated
during
the
pandemic.
But
with
excess
savings
depleting,
we
expect
saving
rates
to
drift
upward
over
the
next
couple
of
years,
dragging
on
consumption
growth.
Contingent
on
our
expectation
of
aggressive
Fed
rate
cuts
playing
out,
the
economy
should
rebound
strongly
in
the
second
half
of
2025
with
robust
growth
from
2026
to
2028.
If
the
Fed
waits
too
late
to
cut,
it
could
cause
a
recession,
but
we
think
the
Fed
will
move
fast
enough.
Our
Bullish
Long-Run
GDP
Forecast
Despite
our
somewhat
bearish
near-term
views,
over
2024-28
as
a
whole
we’re
bullish
on
GDP
growth,
expecting
a
cumulative
two
percentage
points
of
more
growth
than
consensus
estimates,
owing
to
our
optimism
on
labour
supply
and
productivity.
On
a
five-year
time
horizon,
our
GDP
forecasts
are
driven
by
our
views
on
the
supply
side
of
the
economy.
This
is
because
we
assume
the
Fed
will
fulfill
its
goals
of
hitting
its
2%
inflation
target
and
achieving
full
employment,
which
entails
that
the
economy
operates
at
full
capacity
(but
no
higher).
In
terms
of
labour
supply,
we
expect
labour
force
participation
(adjusted
for
demographics)
to
recover
ahead
of
prepandemic
rates
as
widespread
job
availability
pulls
in
formerly
discouraged
workers.
We
also
expect
productivity
growth
to
maintain
the
solid
performance
demonstrated
on
average
since
the
start
of
the
pandemic.
We
expect
productivity
growth
to
average
1.4%
from
2024
to
2028,
in
line
with
the
average
over
2020-23.
US
Real
GDP
Growth:
Supply-Side
Decomposition
This
article
was
compiled
by
Yuyang
Zhang
an
Emelia
Fredlick
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