"This Year US Growth Rate Slows Sharply... Expected to Fall to Potential Growth Rate Level Next Year"

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] Major forecasting institutions expect that the U.S. growth rate will sharply slow down this year due to supply shocks such as delayed supply chain recovery and soaring raw material prices, as well as monetary tightening policies, and will fall to the potential growth rate level next year.

On the 3rd, the Bank of Korea's New York office stated in its report "U.S. Economic Outlook and Major Issues for the Second Half of 2022" that "The U.S. economy is expected to experience a significant slowdown in growth this year," adding, "By sector, corporate investment will continue a solid increase, and government spending will slightly increase from the second half, but personal consumption growth will sharply decline and housing investment will turn to a decrease."

It also predicted, "The tight labor market situation will continue due to supply-demand imbalance, and inflation (core PCE inflation) will remain at a high level in the second half, but the rate of increase will gradually slow down."

Major institutions also expect the U.S. economic growth rate to fall to the potential growth rate level next year. The World Bank (WB), International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), Federal Reserve Board (FRB), Oxford Economics Forecasting (OEF), and 85 investment banks forecast the U.S. Gross Domestic Product (GDP) growth rate (year-on-year) to be 1.7?2.9% this year and 1.2?2.4% next year.

The Bank of Korea stated, "Downside risks to growth prevail, including the possibility of further rises in energy prices, prolonged supply chain constraints, the spread of inflation expectations, and strengthened tightening policies in response, and the uncertainty of the outlook is very high," adding, "In particular, concerns about a recession have rapidly spread since March, when monetary policy tightening intensified."

According to a survey of 48 investment banks, the median probability of a recession occurring within one year has increased from 20% in March to 25% in April, 30% in May, and 33% in June.

Personal consumption is expected to continue a solid trend but with a significantly slower growth rate compared to last year due to base effects. Amid a sharp contraction in consumer sentiment and weakening consumption momentum, real income reduction caused by high inflation and the ripple effects of interest rate hikes are constraining the growth. The report warned that in this case, economic shocks may materialize first among low-income groups who hold relatively fewer liquid assets to absorb consumption shocks.

Furthermore, the growth momentum in the Euro area, which had been recovering since the second quarter of last year, is also slowing down. Despite the resumption of economic activities following the easing of social distancing, recovery is expected to be delayed due to geopolitical risks and global supply disruptions.

According to the Bank of Korea's Frankfurt office report "Euro Area Economic Outlook and Major Issues for the Second Half of 2022," major forecasting institutions expect the Euro area's economic growth rate to be in the mid-to-high 2% range this year and in the low 2% range next year.

The Bank of Korea stated, "There is a possibility that the growth pace will fall short of initial expectations due to high inflation levels, delayed improvement in supply disruptions, and prolonged Ukraine crisis," adding, "By sector, private consumption is expected to improve, but investment and exports will see a slowdown in growth."

It further added, "Looking ahead, the Euro area's economy is judged to have somewhat prevailing downside risks amid high uncertainty," and "If energy prices become unstable due to strengthened European countries' sanctions against Russia related to the Ukraine crisis and Russia's suspension of natural gas supply, it could further constrain growth."

This content was produced with the assistance of AI translation services.