US: Low risks of a technical recession in 2020 – UOB

Senior Economist at UOB Group Alvin Liew noted the US economy faces diminished risks of entering into a technical recession during the current year.

Key Quotes

“The US released its prelim 4Q GDP growth which came in at 2.1% q/q SAAR in 3Q (the same pace of expansion in 3Q but slightly better than Bloomberg median estimate) thanks to a surprisingly strong contribution from net exports, continued improvement in residential investment & government spending. And while consumer spending remained positive, its 4Q growth was a marked slowdown from the preceding two quarters.”

“The main drags on GDP continued to be a slump in business investments and a bigger extraction from private inventories.”

“For the full year, the US economy grew by 2.3% in 2019, slower than the 2.9% recorded in 2018 and further away from the 3% growth pledged by US President Trump.”

“Taking stock of several key factors (including faltering consumer spending, trade uncertainties continuing to hamper business investments, constrained housing growth and the latest coronavirus uncertainty), we expect US growth to slow further to 1.5% in 2020 (from 2.3% in 2019 and below the US potential growth of 2.0%).”

“We factor in a negative quarter in 1Q 2020 (-0.4% q/q SAAR), but the subsequent quarters will resume q/q growth. This implies we see a lower risk of a technical recession (i.e. 2 consecutive quarters of sequential q/q declines) in 2020 but have not ruled it out. It is important to remember that we are still in the midst of the longest US economic expansion on record (128 months as of Jan 2020) and even if we do get a technical recession in 2020, it will likely be mild.”