David Kohl (Julius Baer) | US growth appears to be more resilient than feared. Trade-related uncertainty and weaker global industrial activity dampened business investment, but private consumption remained strong and the return of residential investment as a positive growth contributor improves the 2020 growth outlook.
The advanced US GDP release for the third quarter provided a positive surprise, with an annual growth rate of 1.9%. Although the dynamics of private consumption slowed from the previous quarter, with 2.9% it remained stronger than expected.
The residential investment contribution to GDP growth turned positive for the first time since Q4 2017 and confirmed our view that lower mortgage rates have the potential to stabilise US growth in the presence of weak global industrial activity and trade-war related uncertainty, which has resulted in less business investment.
We have increased our annual GDP forecast to 2.3% in 2019 and 1.6% in 2020, acknowledging the stronger resilience of the US economy in times of intensive trade tensions between the US and China. The looming end of the escalation in the trade dispute has the potential to drive US growth in 2020 even higher than our revised forecast, in particular when the last tranche of the tariffs, which should come into effect on December 15, will be scrubbed.