Can the Energetic US Economy Sustain Its Momentum?
International Monetary Fund: Global Growth Disparity to Widen (Part 6 of 10)
The energetic US economy
In its April 2015 “World Economic Outlook,” the IMF (International Monetary Fund) calls US economic growth “energetic.” The organization says growth has averaged “3.9 percent annualized in the last three quarters of 2014.”
Strong consumer spending during the holiday season was buoyed by a windfall from low crude oil prices and an improving labor market. This spending was the primary contributor to a robust growth rate of 5% in 3Q14. Consumer spending rose by 4.4% in 4Q14, helping the Consumer Discretionary Select Sector SPDR Fund (XLY) and the Consumer Staples Select Sector SPDR Fund (XLP) to rise by 8.2% and 7.2%, respectively, in that period.
Meanwhile, the pace of economic growth slowed to 2.2% in 4Q14, primarily because of the strong dollar that’s making imports surge and exports falter. A strong greenback also affects company profitability. Companies including IBM (IBM), Procter & Gamble (PG), and Honeywell International (HON) announced earlier this year that a stronger dollar would negatively impact their profits.
Lackluster consumer spending and the dollar’s negative impact on imports has already caused various domestic and international agencies to lower their forecasts for US economic growth in 1H15.
The IMF’s outlook for the US economy
Although the IMF has lowered its forecast for US economic growth in 2015, it believes that the negative effect of the stronger greenback will be mitigated by an accommodative monetary policy stance, favorable financial conditions, and stronger household balance sheets, as well as other factors.
Nevertheless, in the long term, it expects the energetic US economy to slow down. The IMF pegs US potential growth at about 2%, with an aging population and weak productivity growth weighing on the economy.
The IMF suggests the US keep debt in check by making efforts to reduce healthcare costs, increase tax revenues, and reform the social security program.
Leaving the US, we’ll now move on to another region in the IMF spotlight—Europe.
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