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Analysts at Nomura expect fiscal stimulus to support above-potential growth from the US economy over H2 2018 and H1 2019.

Key Quotes

“But we are probably experiencing the strongest effects right now. Growth should moderate gradually from here, moving towards potential in H2 2019 and 2020.”

“We anticipate additional protectionist measures from the Trump administration beyond the steel and aluminum tariffs and initial 25% tariff on $50bn in Chinese imports will be a modest drag on growth in coming quarters.

  • We expect the Trump administration to move ahead with the 25% tariff on an additional $200bn in Chinese imports, whether in full or by installments, with an announcement sometime after the USTR finishes the review process on 6 September.
  • In addition, we expect auto tariffs to be imposed but with exemptions for Canada, Mexico and the EU.
  • There is still a significant amount of uncertainty around trade as developments could fare better or worse than we expect.”

“Increased protectionism will likely reduce aggregate demand and increase prices but the overall effects are likely to be subtle. There is a notable risk that a sharp deterioration in financial conditions could weigh more heavily on the outlook.”

“Finally, after incorporating updated projections from the CBO for federal spending, we have adjusted our fiscal assumptions by slightly reducing the amount of projected spending in 2018.”

“Altogether, we now expect real GDP growth of 2.8%, 2.4% in 2018 and 2019, down 0.1pp each from our previous forecasts, and an unchanged 1.7% for 2020.”

“We do not expect increased protectionism to change the near-term outlook for monetary policy barring a substantial deterioration in financial conditions. Recent comments from FOMC participants suggest no material change in views as a result of ongoing trade disputes.”