Business economists are expressing optimism that tax cuts and increased government spending would accelerate economic growth over the next two years.
The latest survey by the National Association for Business Economics (NABE) projects that the economy would grow 2.9 percent this year.
That would be the best performance in three years, up from the NABE’s forecast three months ago of 2.5 percent growth this year.
Since the NABE’s previous forecast, US President Donald Trump pushed a US$1.5 trillion tax cut through Congress and lawmakers reached a deal to raise spending for the military and domestic programs by US$300 billion over two years.
Collectively, the NABE forecasters think the tax cut and spending increase would add 0.45 percentage points to growth this year and 0.3 percentage points next year.
They expect GDP to expand at a solid 2.7 percent next year, according to the new forecast being released yesterday.
“In large part, the increase in growth prospects appears related to federal fiscal policies,” said David Altig, director of research for the Federal Reserve Bank of Atlanta and chairman of the NABE forecasting group, which based its outlook on responses from 51 forecasters.
Some economists have been upgrading their estimates for GDP growth. Still, most of them envision the benefits from the tax cuts and increased spending fading after a couple of years.
UNREALISTIC
The Trump administration insists that its economic policies would accelerate growth to sustained annual rates of 3 percent or more — an assertion that a majority of economists consider unrealistic.
Many analysts expect annual economic growth to slow to a subpar 2 percent rate over the next decade.
Other highlights of the latest NABE forecast:
Unemployment, which averaged 4.4 percent last year, would decline to an average 3.9 percent this year and 3.8 percent next year.
Inflation would remain modest, with consumer price inflation rising from 2.1 percent last year to 2.2 percent both this year and next year.
RISING DEFICIT
The federal budget deficit would surge as a result of the tax cuts and additional government spending.
Last year’s deficit of US$665 is projected to reach US$775 billion in the current budget year, which ends on Sept. 30, and US$1.02 trillion next year.
The risk that a recession would begin this year is low, with fewer than 7 percent of the forecasters putting the likelihood at more than 25 percent. The three key downside risks were seen as a stronger dollar that hurts US exports, weak pay growth and faster-than-expected inflation.
The US Federal Reserve, having raised interest rates modestly this week, would do so twice more this year.
The Fed itself expects three rate increases this year.
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