No big boost expected for US economy from trade deal | The Daily Star
12:00 AM, January 24, 2020 / LAST MODIFIED: 12:04 AM, January 24, 2020

No big boost expected for US economy from trade deal

The initial trade deal between Washington and Beijing is unlikely to provide a significant boost to the US economy and will only reduce the downside risk or at best help activity moderately, a Reuters poll showed.

While financial markets were optimistic in the run-up to and after the trade agreement - with US stocks hitting all-time highs last week - the growth and inflation outlook in the latest poll was little changed from the previous few months.

The Jan. 16-22 Reuters poll of over 100 economists - taken as business leaders gathered at the World Economic Forum in Davos to be greeted by the IMF cutting its global growth forecasts again - showed a significant pickup in the US economy was not on the cards.

“The recent Phase 1 deal between the US and China suggests decreasing odds of an escalation to a full-blown trade war. However, the deal so far is not comprehensive enough to significantly boost economic momentum,” said Janwillem Acket, chief economist at Julius Baer.

That was also clear from predictions for the Federal Reserve to remain on the sidelines this year and on expectations the next likely move would be a cut rather than a hike.

“It is almost a one-way bet on the Fed right now, that either they are on hold or they are easing this year. I mean there is virtually no chance of tightening,” said Jim O’Sullivan, chief US macro strategist at TD Securities.

Reuters polls over the past couple of years have repeatedly pointed to the US-China trade war as the prominent downside risk for the American economy and warned it would bring the next recession closer.

Now, despite a signed trade agreement, albeit a partial one, the chances of a US recession were similar to predictions in recent months - around 20-25 percent in the next 12 months and about 30-35 percent in the next two years.

“Recession odds, which we peg at roughly one-in-four in 2020, will wax and wane with developments on the trade war front,” said Sal Guatieri, senior economist at BMO.

“While recent progress is encouraging, we remain skeptical that a broad accord can be reached this year as complex issues, such as state industry subsidies and forced technology transfers, still need to be resolved.”

All 53 respondents polled said the latest deal would either “reduce the downside risk to the US economy” or “help US economic growth moderately.” Not a single economist said it would “significantly boost growth.” Reuters poll graphic on the US economic outlook here

The US economy will coast with annualized growth expected to have barely moved from the latest reported rate of 2.1 percent at the end of the forecast horizon - the second quarter of 2021.

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