US economy projected to expand by 2% in next 2 years: S&P Global

It expects growth to come in at 2.3 per cent in 2024 and 1.9 per cent in 2025, down from 3.2 per cent in the fourth quarter (Q4) of 2023.

The rating agency expects the US Federal Reserve (Fed) to reduce the federal funds rate more gradually than what it had considered in its September forecast update and reach an assumed neutral rate of 3.1 per cent by Q4 of 2026.

Uncertainty around the forecasts is high given unknowns about how much of Trump's campaign promises will materialise, it said in a release.

Trump's policy proposals from his campaign, at face value, could result in higher inflation in the near term and lower growth in the medium to long term. And the probability of a disruption to the Fed's easing bias over the next two years has risen, said the release.

It will take time for changes in fiscal, trade and immigration policy to be implemented and affect the economy, it noted.

Inflation is likely to be above the 2 per cent target for longer than the rating agency previously thought. Probability of a disruption to the Fed's easing bias has risen. The federal funds rate is now expected to reach 3.5-3.75 per cent by the end of next year (versus 3-3.25 per cent in the September outlook).

S&P Global Ratings expects nominal holiday sales will slow to about 3 per cent in 2024 from 4.7 per cent last year, which is moderately below the pre-pandemic (2015-2019) average of 3.6 per cent

Nominal retail sales surpassed expectations in October with a 0.4-per cent gain over the month. This provided a good start for consumer spending in Q4 2024.

The US manufacturing sector has been stalled for much of the last two years, with only tentative signs of a rebound. Manufacturers also have a historically elevated amount of inventory and will want to move it before doubling down on increased production, S&P Global said.

Although the US manufacturing sector remained in contraction territory at the start of Q4 2024, S&P Global's manufacturing purchasing managers' index pointed to the downturn easing.

Meanwhile, business sentiment measures improved slightly even before the election outcome was known, but they remain well below historical norms.

The NFIB Small Business Optimism Index recorded a moderate improvement in October--a welcome development, though it did little to boost sentiment, S&P Global added.

Fibre2Fashion News Desk (DS)