US economy seen strong in 2018, to slow in 2019: CBO

[WASHINGTON] US economic growth will probably accelerate this year before slowing in 2019 to well below the Trump administration's 3 per cent target as a fiscal stimulus fades, congressional researchers projected on Monday.

In an updated economic outlook, the nonpartisan Congressional Budget Office (CBO) projected that inflation adjusted or real gross domestic product (GDP) would grow 3.1 per cent this year, exceeding 2.2 per cent growth in 2017 due to lower income taxes, increased government spending and private investment.

The government slashed corporate and personal income taxes in January in a US$1.5 trillion package and the US Congress passed a US$1.3 trillion spending bill in March.

This has buoyed consumer and business spending as well as government outlays, which combined with accelerated soybean exports to lift the economy to a 4.1 per cent annualised rate in the second quarter from a 2.2 per cent pace in the January-March period. The April-June growth rate was the highest in nearly four years.

But the CBO said it expected growth to slow in the second half as jolts to consumer spending and agricultural exports either fade or reverse. For instance, some second-quarter soybean exports were aimed at beating Chinese tariffs that took effect in July and cut future shipments.

"In 2019, the pace of GDP growth slows to 2.4 per cent in the agency's forecast, as growth in business investment and government purchases slows," CBO director Keith Hall said in a statement.

Republicans have said the tax cuts, which increased the nation's debt, would pay for themselves through strong economic growth. The Trump administration has said the economy can sustain 3.0 per cent growth over the long term, an assertion many economists have disputed.

The CBO also cautioned that trade tensions could make a bigger dent on GDP growth than anticipated. An escalating US-China trade war could result in tariffs on all goods traded between the world's two largest economies.

Washington also has traded tariffs with the European Union, Canada and Mexico.

"When CBO completed this economic forecast in early July, the agency estimated that the macroeconomic consequences of the US tariffs and foreign retaliatory tariffs that had been implemented at that time would be small," said Mr Hall.

Tariffs then "affected goods that accounted for less than 1.5 per cent of the total value of US trade. However, trade policy has already changed since early July and may continue to evolve, so the effects of new tariffs may become more substantial and have a larger effect on the economy than CBO accounted for in its current projections."

From 2023 to 2028, the CBO forecast the economy growing by about 1.7 per cent each year.

REUTERS