December 27, 2022 FocusEconomics Consensus Forecast Major Economies - January 2023 Economic Outlook  The economy will come close to stagnati...

United States of America Economic Forecast






December 27, 2022
FocusEconomics Consensus Forecast Major Economies - January 2023

Economic Outlook 
The economy will come close to stagnation next year on elevated interest rates and slowdowns abroad. Fairly stable government spending growth and strong oil exports should support activity somewhat. A prolonged housing market correction, sticky inflation, and more-aggressive-than-expected rate hikes domestically and in the U.S. are downside risks. 

After returning to sequential growth in Q3 following two consecutive quarterly contractions, the economy should have expanded at a mild pace in Q4. Consumer spending has likely been supported by easing inflation and a robust labor market, while fixed investment is seen shrinking at a softer rate than in Q3. However, government spending growth is forecast to have eased, while exports are projected to fall into contraction as external demand ebbs. Looking at available data, personal consumption expenditure rose 0.8% month on month in October, while job gains beat market expectations in October and November. 

Less positively, retail sales were weaker than expected in November, while the private-sector composite PMI fell throughout the quarter. Moreover, the real estate sector is feeling the pinch from higher interest rates, with housing starts falling for the third straight month in November. After this year’s slowdown, the economy is forecast to barely grow in 2023, as tighter monetary policy and a downturn abroad weigh on activity. That said, strong energy exports will continue to provide support. Faster-than-expected Fed tightening is the key downside risk. Potential difficulty raising the debt ceiling and heightened tensions with China also cloud the outlook. 

FocusEconomics panelists see GDP growing 0.3% in 2023, which is unchanged from the previous month’s forecast. In 2024, our panel sees the economy expanding 1.3%. Inflation came in at 7.1% in November, down from October’s 7.7% and undershooting market expectations. November’s figure marked the lowest inflation rate since December 2021. Price pressures should continue to decline going forward, aided by further interest rate hikes, a tough base effect and the gradual easing of external price pressures. 

FocusEconomics panelists see inflation averaging 4.1% in 2023, which is unchanged from last month. In 2024, our panel expects inflation to average 2.6%. At its mid-December meeting, the Fed raised the target range for the federal funds rate by 50 basis points to 4.00–4.50%, following four successive 75 basis point hikes. Our panelists see interest rates peaking at close to 5% in the middle of next year before declining by end-2023. The discrepancy among panelists is large, with an end-2023 forecast spread of 225 basis points. Our panelists project the upper bound of the federal funds target range to end 2023 at 4.68% and 2024 at 3.40%. 

The dollar index traded at 104 on 20 December, down 2.9% month on month due to lower-than-expected inflation data spurring market hopes of a more dovish Fed. However, the dollar index is still up around 8% so far this year. Looking ahead, geopolitical tensions, the health of the global economy and monetary tightening will be the key determinants of dollar strength. Composite PMI: The dollar index traded at 104 on 20 December, down 2.9% month on month due to lower-than-expected inflation data spurring market hopes of a more dovish Fed. However, the dollar index is still up around 8% so far this year. Looking ahead, geopolitical tensions, the health of the global economy and monetary tightening will be the key determinants of dollar strength.

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