Trump generated GDP boosted by stimulus measures of 2.9%, but not the promised transformation



[ad_1]




The stimulus measures temporarily boosted the potential growth rate of the economy.

The US economy had a very good year in 2018, but this is not the chancellor promised by the Trump administration.

The country's gross domestic product grew 2.9% during the year, according to preliminary Commerce Department estimates released Thursday. This is the best growth in three years, but it is likely to be as good as possible.

During the 2016 campaign, Trump insisted that he could bring the long-term sustainable growth rate of the economy to 3% or more by unlocking private sector productivity. But it turns out that achieving 3% growth and staying there is more difficult than what Trump and his associates predicted.

What is the probability of a sustainable growth of 3%? Productivity growth rates should triple. Or a massive influx of immigrants.

Also: Sorry, Mr. Trump, but the only way to get a 3% growth is to hire more Mexicans.

The stimulus measures resulting from the big tax cuts passed at the end of 2017 and the important federal spending bill in early 2018 have had a positive but temporary shock effect on the system, but the impact begins. already to fade. A year ago, forecasters predicted that fiscal stimulus would bring GDP to about 3 percent in 2018, before gradually fading, leaving the economy's growth potential at its current level.

This forecast is still topical. Most forecasters estimate that the economy will fall to about 2.5% in 2019 and 2% in the early years of the next decade.

For the current quarter, the most recent forecast of the well-esteemed forecasters at IHS Markit indicates growth of 1.1%.

The economy has been stimulated but not transformed by the reduction of taxes. Business investment jumped 7% for the year, which is actually lower than the 8.5% growth forecast by the Congressional Budget Office earlier this year.

Most of the investment was put forward in the first half of the year, when business investment grew at an annual rate of 10%. In the second half, however, investment growth fell to 4%, slightly higher than mid-2016 and less than half the growth rate recorded in the late 1990s.

Businesses have become cautious for a number of reasons: Trump's trump trade rumors have shaken the leaders' confidence in their return on investment. The slowdown in global growth has amplified these concerns.

The year 2018 was marked by a boom in investments in intellectual property, such as software, research and development and artistic works. For the year, these investments increased by 7.7%, compared to 7.5% in 2016 for the best year since 2000, or 9.5%.

Such investments can be the key to increasing the economy's productivity and potential growth rate, if they continue.

As I reported in August, most of these investments in the first half came from pharmaceutical and technology companies, with particularly large investments from Amazon.

AMZN, -0.08%

, Google

GOOG, + 0.35%

, Microsoft

MSFT, -0.12%

, Apple

AAPL, -0.98%

and Intel

INTC, -0.53%

.

To sustainably increase potential growth rates, we will need more than a few companies that invest in new products and services. We have not seen that yet, and the economy is stuck in a 2% rut.

[ad_2]
Source link