Chances of US recession slightly higher: Reuters survey, Latest Business News - The New Paper

Chances of US recession slightly higher: Reuters survey

This article is more than 12 months old

The Federal Reserve is still expected to raise interest rates again next month and three times next year, but a strong majority of economists polled by Reuters over the past week said the risk is it will slow that pace down.

The probability of a US recession in the next two years, while still low, also nudged up to a median 35 per cent from 30 per cent in the latest monthly Reuters survey of economists. It held at 15 per cent for the next 12 months.

While many developed economies are already slowing, growth in the world's largest economy is still solid, riding the tail-end of a US$1.5 trillion (S$2 trillion) tax cut boost, and official unemployment is the lowest in nearly half a century.

But that shine is forecast to start coming off this quarter, with growth slowing more by the end of next year as a trade stand-off with China shows no signs of letting up.

"The economy is facing a growing number of headwinds, including the lagged effects of previous interest rate rises and dollar strength, the uncertainty of trade protectionism at a time when external demand is slowing, and a sense that the support from the fiscal stimulus will gradually fade," said Mr James Knightley, chief international economist at ING.

"The main risk to the upside likely stems from the tight jobs market and whether wages can continue rising, but... we look for economic growth to slow through 2019 and this should see inflation pressures gradually recede late next year."

Gross domestic product (GDP) will expand at an annualised rate of 2.7 per cent this quarter, down from 4.2 per cent in the second quarter and 3.5 per cent in the third. GDP growth is then forecast to slow to 2 per cent to 2.5 per cent throughout 2019 and down to 1.8 per cent by mid-2020, about half the latest reported rate. - REUTERS