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US economic outlook in 2016 – Deutsche Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 30, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at Deutsche Bank, suggests that the US GDP growth is projected to have slowed to less than 2% in the second half of 2015, and we see it picking up slightly to just over 2% during 2016 and 2017.

    Key Quotes

    “The economy should be driven predominantly by a healthy expansion of consumer spending, plus some outsized gains in residential investment as the housing market continues to tighten. Business investment growth should remain relatively subdued, held back by, among other factors, a strengthening dollar, election-year uncertainties, subdued corporate earnings growth, and in the longer term, tightening financial conditions. Output growth should be restrained substantially in the year ahead by the lagged depressing effects on net exports of past substantial appreciation of the dollar and some further increases to come. That restraint should ease over time, but domestic demand growth should slow as the Fed’s normalization of monetary policy progresses. And that slowing should help keep the labor market from overshooting too much.”

    “The modest pace of GDP growth that we are projecting should be more than enough to effect ongoing tightening of the US labor market. With labor productivity growth and labor force growth both running at historically depressed rates, we estimate that potential GDP growth has slowed to around 1% currently, and is likely to rise only gradually as productivity and labor force growth pick up over the period ahead.”

    “We see the unemployment rate falling into the mid-4% area over the next couple years, putting it noticeably below NAIRU, but not by enough to effect more than a gradual pickup in wage and price inflation. We see core PCE inflation returning to near 2% two years hence, roughly in line with FOMC projections. However, our forecast for growth is a bit below consensus and the FOMC median projection, and we see the dollar rising more than the Fed is likely to have assumed. On a trade-weighted basis, we expect the dollar to rise nearly 5% next year. While significant, this appreciation is a notable deceleration from the 20% rise in the trade-weighted dollar since mid-2014.”

    “Accordingly, we expect the Fed to raise rates slightly less rapidly than anticipated in the most recent (September) FOMC median projection (a projection that could be revised down somewhat for the December FOMC meeting). At the same time, our projection for 100 bps of Fed rate hikes by the end of 2016 (including a 25 bp liftoff this month) and another 100 bps during 2017 is noticeably more than the market has been pricing. We also expect the Fed to taper the reinvestment of its maturing asset holdings and allow its balance sheet to begin to run off naturally after mid-2016.”
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