Economic Forecast: US Growth to Slow Down
The US economy is expected to experience a slowdown in growth, with real gross domestic product (GDP) forecasted to be below potential. S&P Global Ratings predicts a growth rate of 1.7% in 2025 and 1.6% in 2026, which is lower than expected due to various restraining factors.
Factors Affecting Growth
The growth slowdown is attributed to several factors, including slower population growth, tariffs, government cost-cutting, lower immigration levels, and an uncertain operating environment for many businesses. These factors will contribute to a weakened economy, making it challenging for businesses to operate and grow.
Inflation and Unemployment Rates
The forecast also predicts a rise in core CPI to 3-3.5% by the end of 2025, indicating higher inflation rates. Additionally, the unemployment rate is expected to increase to 4.6% by the first half of next year and then gradually return to its long-run average of 4.1% by mid-2027. This rise in unemployment will further soften the US labor market.
Federal Reserve’s Funds Rate
The Federal Reserve’s funds rate is expected to be 3.75-4% by the end of 2025 and will reach its nominal neutral of 3-3.25% by the end of 2026. This prediction indicates a potential increase in interest rates, which may impact borrowing and spending.
Risk of Downturn
While the base case is that the United States will avoid recession in the near term, the risk of a downturn is elevated. There is a 30-35% probability of a downturn starting in the next 12 months, which is notably higher than the post-World War II unconditional recession probability of 13%. Uncertainty around trade, deregulation, fiscal policy, geopolitics, and immigration remains elevated, contributing to the increased risk of a downturn.
Conclusion
In conclusion, the US economy is expected to experience a slowdown in growth, with various factors contributing to this decline. The rise in inflation and unemployment rates, combined with the potential increase in interest rates, may have significant implications for businesses and individuals. While the risk of a downturn is elevated, it is essential to monitor the economic situation closely and be prepared for any potential changes.
