Economic growth will slacken in 2016 to its slowest pace in four years, as uncertainty about the presidential election weighs on the outlook, according to a survey of forecasters by the National Association for Business Economics (Nabe).
They see GDP expanding 1.9 percent this year on a fourth quarter-to- fourth quarter basis. That’s down from a projected 2.5-percent gain in the last quarterly survey released in March and compares with growth last year of 2 percent.
Almost 60 percent of forecasters say uncertainty surrounding the November presidential election will hurt the economy, the association said. Economic unease has shaken up the upcoming presidential race.
Americans especially worried about the economy have been more likely to support outsider candidates, like Donald Trump and Sen. Bernie Sanders. The crucial California Democratic primary is on Tuesday. “If I’m an owner of a medium-sized business and I’m hearing very rattling news about the election, on the margin I’ll be a little more cautious about hiring or making an investment,” said Lisa Emsbo-Mattingly, president of Nabe.
Emsbo-Mattingly, who is also director of research for asset allocation for Fidelity Investments in Boston, said the biggest factor behind the markdown in the 2016 outlook is weak business investment. Spending on equipment, structures and intellectual property is projected to stall in 2016, after expanding 2.8 percent last year.
Forty-nine percent of the economists in the Nabe survey see a positive impact on economic growth this year from low oil prices, as opposed to 18 percent viewing it as a negative. For next year, 55 percent see the impact as positive and 7 percent as negative.
The economists expect home prices to increase 5 percent for the fourth quarter, unchanged from the March forecast. The median estimate is for the growth in home prices to slow to 4.3 percent next year, just above the 4-percent forecast in March. Another negative political factor for economic growth: the rise of nationalist views such as trade protectionism around the world was chosen by 38 percent of those surveyed as the factor most likely to significantly reduce global growth in the next two years. Sixteen percent chose terrorism.
Corporate profits are forecast to fall this year for the first time since 2011, when they declined 2.9 percent, according to the survey. The Nabe panel sees a 2-percent drop in after-tax profits without inventory valuation and capital consumption adjustments after a 3.3-percent advance last year.
The survey of 48 economists was conducted from May 2 to 17, before last week’s release of the monthly jobs report that saw payrolls rise at their slowest pace in almost six years. The Nabe panel projects the economy will gain ground in 2017, with GDP climbing 2.3 percent, according to the median forecast. Profits are also projected to recover and rise by 3.9 percent next year.
(Bloomberg News and AP)
Image credits: AP/Lynne Sladky