U.S. annual real GDP likely to grow by 3 pct, inflation to average 2.5 pct in 2018: DBS Group Research

The United States’ annual real gross domestic product (GDP) is expected to grow by 3 percent, while inflation (as measured by the US Urban Consumers CPI) to average around 2.5 percent, according to the latest report from DBS Group Research.

Surveys of businesses show both uncertainty about the outlook and the beginning of a trend of earnings projections being revised downward (starting with automobile manufacturers). But there are broader, still-supportive dynamics at play.

Last year’s tax cut will act as a shock absorber to potential downside from tariff wars, consumer spending is healthy, labour market is tight, fiscal stance is growth supportive, and trade, despite the poor headlines, is still robust, the report added.

This path of economic data would not only ensure that the US Federal Reserve hikes two more times this year, but a continuation of the quarterly rate hikes can be expected next year as well. Inflation upside is likely (especially if trade wars continue and US-Iran conflict takes place), but so far the markers are modest, causing no heightening of concern for Fed policy.