Fitch issues commentary on US growth; lowering outlook to 2.2% in 2015 and 2.5% for 2016 and 2017
- Fitch: A narrowing output gap and approaching monetary tightening are reducing the US economy's ability grow at around 3% a year, Fitch Ratings says. We cut our outlook for US growth to 2.2% in 2015 and 2.5% in each of 2016 and 2017 in our latest quarterly "Global Economic Outlook", published on Tuesday, down from our previousforecasts of 3.1% for 2015 and 3.0% for 2016.
- Not only is the supply of capital and labour growing more slowly, but Bureau of Labor Statistics data this week showed total factor productivity increased at an annual rate of 0.8% last year - lower than the 1.4% average in 1995-2007. Slower productivity growth combined with temporary shocks such as those in 1Q15 means annual US GDP growth has averaged just 2.2% since 2010. As the output gap gradually narrows, growth rates should converge with potential output at around this level
- The US economy is also heading into a period of monetary tightening. We expect the first Fed rate increase before the end of 2015. We also expect the pace and extent of tightening to be subdued by historical norms, but higher rates will increase debt-servicing costs, and even a gentle exit from a long period of loose monetary policy could increase financial market and asset price volatility, affecting household wealth and confidence