U.S. economy likely to grow 2.5 pct in H2 2016, expected to slow in 2017

The U.S. growth outlook for the second half of 2016 was marked down in June after the outcome of the UK’s vote to leave the European Union, said Barclays in a research note. Even if limited direct impacts on the activity of the U.S. were expected, there are risks that increased uncertainty might spill over to the country via financial market channels. In light of those risks, the projections for business fixed investment and contribution from net trade to the GDP growth were lowered.

“These adjustments, in turn, led us to reduce our official forecast for US GDP growth from 2.5 percent to 2.0 percent in Q3 and Q4 16”, added Barclays.

In the event, financial markets seem sanguine regarding risks after the Brexit vote and the outcome is unlikely to be a drag on the U.S. activity. With this view and the optimistic tone of data in the third quarter, the projection is restored to 2.5 percent for the second half of 2016 and reverse the earlier markdown of investment and lower the drag from net trade, stated Barclays.

“We now expect final sales to domestic purchasers to increase 2.6 percent in both Q3 and Q4, up from 2.3 and 2.4 percent respectively. We also see a slightly weaker growth profile in 2017. We expect GDP growth to slow to 2% beginning in Q2 and for the economy to hold that pace through the end of 2017”, noted Barclays. 

Meanwhile, consumption growth is expected to decelerate to 2 percent late next year from its 2.5 percent pace in second half of 2016.