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Commenting on the US Bureau of Economic Analysis’s Gross Domestic Product (GDP) report for the fourth quarter of 2019, “the US economy continued to grow at a solid rate in Q4 last year, despite still significant US-China trade disruptions over the period,” noted  Nathan Janzen, Senior Economist at RBC.

Key quotes

“Business investment edged lower for a third straight quarter – the longest such streak since 2009 – with the industrial sector continuing to feel the pinch from the US-China trade war. But consumer spending increased at a still relatively solid 1.8% pace (although that is down from a 3.1% increase in Q3) and residential investment growth picked up to its strongest pace in 2 years.”

“Most of a large add to growth from net trade came from an almost 9% drop in imports, which is not exactly positive for the domestic demand backdrop. But some of the volatility in trade flows was probably related to shifting imports around US-China tariff hikes (both implemented and threatened). The boost from net trade in Q4 won’t likely be repeated, but neither will an offsetting sharp slowing in the pace of inventory accumulation.”

“We don’t expect the Fed to cut interest rates further in 2020 and capacity pressures (eg. the already low unemployment rate) are making it more difficult for the economy to grow at an ‘above-trend’ rate. But easing trade tensions with the signing of the US-China phase 1 deal earlier this month have also reduced go-forward downside risks for the industrial sector. We continue to expect respectable if unspectacular growth in the economy’s long-run trend growth rate at around 2%.”