Kavan Choksi Discusses United States Economic Forecast for Q3 2024
The United States economy remains fundamentally strong even with the persistent concerns associated with the durability of growth and interest rate policy. As per Kavan Choksi, while the real gross domestic product growth did slow in the first quarter of 2024, growth did rebound to a strong 3.0% in the second quarter. All the evidence available largely suggests that policymakers have been able to bring inflation under control without causing a recession.
Kavan Choksi talks about United States economic forecast for Q3 2024
Baseline scenario of the United States economy remains relatively positive. The boom in factory construction is likely to boost the potential of the United States economy in the coming years. A faster pace of interest rate cuts by the Fed in the short term is likely to allow households to take on more debt, as well as support continued growth in consumer spending. Coupled with elevated government consumption, United States economy is expected to grow by 2.7% in 2024. An upside scenario can be expected where positive structural changes to the labour market take place in the long run.
Real GDP growth has been softer than expected in the 2nd quarter of 2024, after slowing in the first quarter. This contrasting result has been caused by a huge drawdown in inventories in the first quarter of 2024, followed by their replenishment in the second quarter. GDP grew at a reasonably strong pace of 2.2% on an average through the first half of 2024. GDP is likely to continue to grow at a similar pace throughout the remainder of 2024, prior to slowing down in 2025.
The story for the United States economy is positive, on the whole. Consumer spending has been stronger than expected and is expected to rise 2.4% in 2024. This is a bit more than the 2.2% increase recorded last year. On the other hand, business investment is expected to go up 4.2% in 2024, down only a bit from the 4.5% growth recorded in the year of 2023. The Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act is likely to keep driving strong gains in machinery and structures, as well as equipment investments. Moreover, companies are expected to continue investing heavily in software and other intellectual property like artificial intelligence. When it comes to trade, growth in exports is expected to slow to 2.2% in 2024 prior to picking up again in the following year. Government spending is additionally forecasted to rise 2.9% in 2024.
Inflation, as measured by the Consumer Price Index (CPI), dropped below 3.0% in July. It is anticipated to keep falling, potentially reaching 2.7% by the fourth quarter. Job growth is expected to continue slowing down, while demographic trends are likely to push the labour force participation rate lower. Overall, real GDP is expected to go up 2.7% in 2024 and by 1.5% in 2025. Between 2026 and 2028, real GDP growth is expected to hover somewhere between 1.7% and 2.1% per year.
Ongoing conflicts in Ukraine and the Middle East are in volatile phases, with a high likelihood of escalation. As Kavan Choksi underlines, as both regions are significant oil producers, any escalation could lead to higher oil prices. Geopolitical conflicts are not simply fought with weapons. In fact, trade policy is increasingly a battleground for competition. With the US presidential election in full swing, both major party candidates appear poised to pursue some degree of tariffs on foreign imports.
