Despite a slowdown in economic growth in the first quarter of 2018, the Fannie Mae Economic and Strategic Research (ESR) Group, in its June Economic and Housing Outlook report, predicts real GDP growth will accelerate over the rest of the year, with full-year real GDP growth of 2.7%. This prediction, as well as the ESR Group’s 2.3% full-year GDP growth prediction for 2019, remains unchanged from last month.
“Our growth forecast continues to reflect our 2018 theme: the ongoing stimulus/response of fiscal policy and resulting tightness of monetary policy,” said Fannie Mae chief economist Doug Duncan in a statement. “On the heels of a disappointing first quarter, we expect economic growth to accelerate through the remainder of the year before decelerating in 2019.”
On the upside, the ESR Group notes that business investment has the potential to accelerate and consumer spending the potential to increase. Downsides include Fed monetary tightening, trade tensions, and political uncertainty in the eurozone. The ESR Group considers these upside and downside risks balanced.
The group expects recent tariff announcements to affect states with a high share of international exports in their state products, including North Dakota (8%) and Texas (5%). Consumer spending is expected to rise as wage growth remains moderate and labor markets remain strong.
The Fed raised the federal funds rate by an additional 25 basis points recently, which implies that there will be four rate increases total this year, up from a projected three in March. The ESR Group continues to expect only one more rate hike in 2018, but an additional two are becoming more likely.
“As the Federal Reserve contemplates additional rate hikes this year and next and the United States moves beyond the heated rhetoric of protectionism and toward the actual application of tariffs, the downside risks become more pronounced,” Duncan said, “ … but builders continue to face headwinds from rising costs, which, along with rising interest rates, are also contributing to affordability concerns.”
The full June 2018 Economic and Housing Outlook report is available here.
