US economy misses Trump's 3% growth target in 2019

[WASHINGTON] The US economy missed the Trump administration's 3 per cent growth target for a second straight year, posting its slowest annual growth in three years in 2019 as the slump in business investment deepened amid damaging trade tensions.

The economy grew 2.3 per cent last year, the Commerce Department said on Thursday. That was the slowest since 2016 and followed the 2.9% notched in 2018. The 3 per cent growth target has remained elusive despite the White House and Republicans' US$1.5 trillion tax cut package, which President Donald Trump had predicted would lift growth persistently above that target.

The department's snapshot of gross domestic product, however, showed the economy maintaining a moderate pace of growth in the fourth quarter, thanks to a smaller import bill. The report suggested the Federal Reserve's three interest rate cuts in 2019 helped to keep the longest expansion in history, now in its 11th year, on track and avert a downturn.

It followed on the heels of the Fed deciding to keep rates unchanged. Fed Chair Jerome Powell told reporters on Wednesday the US central bank expected "moderate economic growth to continue" but also nodded to some risks, including the recent coronavirus outbreak in China.

The Trump administration's 18-month-long trade war with China last year fueled fears of a recession. Though the economic outlook has improved with this month's signing of a Phase 1 deal with Beijing, economists do not see a boost to the economy as US tariffs remained in effect on US$360 billion of Chinese imports, about two-thirds of the total.

Gross domestic product increased at a 2.1 per cent annualised rate in the fourth quarter, matching the third-quarter pace, as lower borrowing costs encouraged purchases of motor vehicles, houses and other big-ticket items. Growth was also lifted by increased government spending. That helped to offset the drag from a slower pace of inventory accumulation.

Economists polled by Reuters had forecast GDP rising at a 2.1 per cent rate in the fourth quarter. Excluding trade, inventories and government spending, the economy grew at a 1.4 per cent rate in the fourth quarter, the slowest in four years. This measure of domestic demand rose at a 2.3 per cent pace in the third quarter.

Economists estimate the speed at which the economy can grow over a long period without igniting inflation at around 1.8 per cent.

The White House claimed that slashing the corporate tax rate to 21 per cent from 35 per cent, as well as shrinking the trade deficit would boost annual GDP growth to 3.0 per cent on an sustainable basis. Economists have long disagreed, pointing to structural issues like low productivity and population growth. Some also argued that there was historically not a very strong relationship between corporate tax rates and business investment.

REUTERS