The US economy may lose its growth momentum

 The US economy may lose its growth momentum

Last year, the US economy grew at its fastest pace since 1984, but the momentum is not expected to continue this year.

CNBC assessed, the US started 2022 with little sign of growth. The outbreak of the Omicron strain in late 2021, combined with tightening fiscal policy measures, led economists on Wall Street to reduce their GDP forecasts.

In addition, the US Federal Reserve (Fed) has pivoted, from the most accommodative policy in history to strong anti-inflation measures. This makes the US economic picture change significantly. GDP growth in the first quarter is being forecasted by 0.1% according to the Atlanta Fed branch.

"The economy is slowing and going down. This is not a recession," said Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council under President Trump. , however, it will happen if the Fed is too aggressive."

US GDP grew impressively at 6.9% in the fourth quarter of 2021. In which, the index of all goods and services produced in the US increased by 5.7% over the same period last year. Before that, these indexes had dropped 3.4% because of the pandemic in 2020, which saw the strongest but shortest recession in US history.

But the way forward is less certain. Much of last year's growth was attributed to inventory rebuilding, which contributed 4.9 percentage points, or 71% of the total. Inventories "burdened" almost all of the GDP growth of 2.3% in the third quarter.

At the same time, the ISM Manufacturing survey on February 1 showed that the pace of new orders showed signs of slowing down, although still increasing. Thus, in general, this is not a recipe for sustainable US economic growth.

Inventories are almost back in place, said Mark Zandi, chief economist at Moody's Analytics. "Then you have increasing obstacles from fiscal, monetary policy. So growth from the start of this year will be very limited."

Wall Street economists were quick to downgrade their growth forecasts for the economy. Goldman Sachs has lowered its Q1 GDP outlook to 0.5% from 2% previously. The bank also cut its full-year outlook forecast to 3.2%, 0.6 percentage point lower than current levels.

Growth could slow sharply in 2022 as the financial support package fades in the near term, said Goldman economist Ronnie Walker. Besides, the spread of Covid-19 will affect service spending and prolong supply chain disruptions.

"First-quarter growth is likely to be particularly weak because of the fiscal drag that comes with the impact from Omicron," a Goldman representative said.

Similarly, Bank of America has lowered its forecast for US GDP growth in the first quarter of this year to 1% from 4% previously. GDP for the whole year also decreased from 4% to 3.6%.

Ethan Harris, Bank of America's head of global research, cited four reasons for the less-optimistic outlook: Omicron, inventory reductions, less financial support, and a tightening of the banking sector. Fed.

"We now expect a fiscal package about half the size of the Build back better act plan, with less fiscal stimulus. We think this will spur growth. growth in 2022 is only 15-20 basis points, compared with the previous estimate of 50," he said.

This expert also believes that the risk of negative growth in the first quarter of 2022 is significant.

Analysts also said the Fed needs to be careful not to go too far in the fight against inflation, which is at the highest level in nearly 40 years.

"They run the risk of going too far and overdoing it," commented Mark Zandi. Market expectations are five rate hikes, a sixth being discussed. This, according to him, gives the impression that the number of interest rate hikes is 1-2 times more than necessary in the context of the economy facing many difficulties.