US economy forecast to hit wall

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US Commerce Department data shows the nation’s economy grew by 5.7% last year – its best performance since 1984 – as it roared back from the pandemic lockdowns. However, analysts expect the growth to slow this year, as the government scales back stimulus spending and the Federal Reserve raises interest rates. Other risks include high inflation and threats from new Covid variants, including Omicron, they say.

“The economy is decelerating and downshifting,” the chief economist for the Americas at Natixis and ex-chief economist for the National Economic Council under former President Donald Trump, Joseph LaVorgna, told CNBC. “It’s not a recession, but it will be if the Fed tries to get too aggressive,” he said.

Statistics show that GDP surged by an impressive 6.9% in the fourth quarter of 2021, while the measure of all goods and services produced in the country grew 5.7% on an annualized basis.

Much of that end-of-year gain was fueled by an inventory rebuild that “contributed 4.9 percentage points to the total, led primarily by the auto sector,” the chief international economist at ING, James Knightley, was quoted as saying by CNN. Inventories were responsible for almost all of the third quarter’s 2.3% GDP increase.

“Given ongoing supply disruption we can’t count on this continuing to support growth in coming quarters,” Knightley said.

Tuesday’s ISM Manufacturing survey showed that the pace of new orders, while still showing gains, is slowing substantially.

Meanwhile, Goldman Sachs has trimmed its first-quarter GDP outlook to 0.5%, down from 2%. The bank also cut its full-year view to 3.2%, well below the current 3.8% consensus.

“Growth is likely to slow abruptly in 2022, as fiscal support fades and, in the near term, virus spread weighs on services spending and prolongs supply chain disruptions,” Goldman economist Ronnie Walker said in a note for clients seen by CNBC. “Q1 growth is likely to be particularly soft because the fiscal drag will be accompanied by a hit from Omicron.”

Bank of America also downgraded first-quarter GDP growth to 1% from 4%, and cut its full-year forecast to 3.6% from 4%.

For more stories on economy & finance visit RT’s business section

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