uncertain economic policy environment. Even if a federal budget compromise that President Trump is also able to sign can be hammered out in the next three weeks, we still expect dampening effects on the US economy. Day-to-day politics will no doubt be dominated by staggering from one deadline to the next until November 2020. Consumers and businesses alike will be somewhat more cautious in the future.
We have, therefore, lowered our growth forecast and now expect economic growth of 2.1% in 2919 and of 1.6% in 2020. Overall, the growth dynamic will be somewhat reduced, but still solid. Given the somewhat weaker outlook for the US economy, we have also lowered our inflation forecast. Ultimately, wage growth will probably accelerate less than initially assumed despite the good employment situation. After an average inflation rate of just 2% this year we expect 2.3% next year.
In his first two years in office the US President has kept some of his election promises. In 2018 he also achieved the goal of “strong economic growth.” Gross domestic product may at least be expected to have increased by around 3 per cent overall. However, due to the government shutdown during the last few weeks, but above all because of reduced confidence among consumers and at the companies, this target will now no doubt fall victim to the promise to build a wall and its implementation. As a result, “strong growth” will not be among Trump’s achievements in 2019.
US economic growth, which is usually only sluggish at the beginning of the year, will probably have ground virtually to a halt in the current quarter. Overall, we expect few catch-up effects that might lend growth an additional boost immediately or in the second quarter. Because of the uncertainty consumers are likely to think twice about big-ticket purchases or possibly even postpone them.
Many US households will now be concerned about how long they would be able to make two ends meet if their wages are not paid and will, therefore, be somewhat more reluctant to spend their money. This admittedly continues to contrast with a very good employment situation, but consumer spending growth will nevertheless slow to some extent. However, consumer spending will remain true to its role as an important growth engine.
The uncertain economic policy outlook is also slowing the momentum of investment. Given the entrenched party-political fronts, companies will probably not be able to expect further financial incentives or other supportive measures from federal policy. On the contrary – outstanding payments have not been made recently and various applications could not be processed. Accordingly, the business climate in industrial and service businesses, which is at a high level, is likely to deteriorate gradually in the coming weeks.