The Economy

OECD Raises 2018 US Growth Forecast to 2.5%

The group sees a temporary boost to GDP from the proposed tax cuts but its projection is still below that of the Trump administration.
Matthew HellerNovember 29, 2017
OECD Raises 2018 US Growth Forecast to 2.5%

U.S. tax reform will give a temporary boost next year to economic growth, buttressing business investment, but slowing labor force growth will reduce consumption in 2019, according to the Organization for Economic Cooperation and Development.

In its latest Economic Outlook, the OECD predicted U.S. gross domestic product will increase 2.2% in 2017, 2.5% in 2018 and 2.1% in 2019. In September, it had forecast 2.1% growth and 2.4% the following year.

The growth projections for the global economy are 3.6% in 2017, 3.7% in 2018 and 3.6% in 2019.

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In the U.S., “Buoyant asset prices and strong business and consumer confidence will support consumption and investment growth,” the OECD said. “The impact of slowing employment growth on consumption will be partly offset by wage growth acceleration as the labor market tightens further.”

Tax reform that includes lowering rates on corporate and personal income would stimulate business investment and personal consumption during 2018 and 2019, while also underpinning higher wages, the report said.

But the OECD’s growth projections are below those of supporters of the Trump administration and Republicans, who say the tax plan will result in sustained growth of 3% or more. The group also noted that “slowing labor force growth will gradually constrain consumption in 2019” and “vulnerabilities have emerged during the extended period of exceptional monetary easing.”

“In particular, asset prices are elevated and high leverage exposes the corporate sector to shocks,” it said. “House prices exceed pre-crisis levels in several big cities. Although regulatory oversight imposes a burden on some financial firms, reforms to minimize these burdens need to ensure that vulnerabilities are not allowed to build up further.”

As far as global growth, the OECD said the “persistent effects of prolonged sub-par growth” are weighing on private sector performance including investment, trade and productivity.

“Growth has picked up momentum and the short-term outlook is positive, but there are still clear weaknesses and vulnerabilities,” OECD Secretary-General Angel Gurría said in a news release. “There is a need to focus structural and fiscal action on boosting long-term potential as monetary policy support is reduced.”