US: Midterms pave the way for slowdown – ABN AMRO

According to Bill Diviney, Senior Economist at ABN AMRO, the outcome of the US midterm elections now paves the way for the growth slowdown that they have had for some time as their base case scenario.

Key Quotes

“At the current growth pace of 3-4% annualised, the economy is firing on all cylinders, and growing well above potential (the Fed’s estimate is 1.8%). From early next year, we expect momentum to cool, driven by slowing investment.”

“The projected increase in government spending will likely keep growth somewhat above potential for a time. However, by Q4 19 we expect annualised growth to dip below 2%, and to continue at that subdued pace into 2020, as the fiscal boost eases.”

“With Democrats now controlling the House, we think it will be much harder for the President to push through further significant tax or spending changes. While Democrats may favour more infrastructure spending, we suspect any moves on this front would be as fiscally neutral as possible, to avoid supporting the President’s prospects ahead of the 2020 elections.”

“With growth momentum slowing as 2019 progresses, and leading indicators next year likely to suggest a further slowing in 2020, we expect the Fed to pause in its rate hike cycle after June.”

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