The US economy will grow by around three percent in 2018. US President Trump appears to be fulfilling his promise to “sustainably” raise the economy to a higher level of growth through tax breaks and deregulation. The strongest growth impetus comes from private consumption, which benefits from the good situation on the job market. With no turnaround in the labor market in sight, the upturn should continue next year, reaching a new record in June 2019 with a duration of more than 120 months.
However, we expect that US economic growth will slow to 2.3 percent next year. The positive effects of the tax cut are declining and the rise in US interest rates is also having a dampening effect on growth. The biggest problem facing the US economy is the real estate market. In recent years, prices have risen far more than disposable incomes due to insufficient or inappropriate housing and housing supply. In addition, the more restrictive monetary policy of the US Federal Reserve has caused mortgage rates to rise sharply. Both factors have made real estate increasingly unaffordable and the real estate market has cooled. This trend will continue in 2019. However, we do not expect a “crash” on the real estate market, with similarly devastating effects on the overall economy as during the financial crisis. This is because the current total of mortgage loans, at around $ 10.2 trillion, is slightly lower than it was ten years ago and debt is much lower in relation to disposable income than it was then. A general debt problem of US households is in our view, even if the car and student loans granted have risen to a record level. However, their total volume is not comparable to real estate loans, so the resulting risks for the US economy should be manageable. The recession risk will therefore remain low in 2019.
Eurozone: Political risks hit
Economic momentum in the 19 countries of the eurozone has slowed significantly. Although economic growth in 2018 will still amount to 1.9 percent, we expect a significant slowdown for next year to only 1.3 percent. At the same time, the economic risks are immense. The dynamics of exports, on which the eurozone economy depends heavily, have already weakened significantly. In addition to increased uncertainty in connection with trade disputes, the appreciation of the euro is also responsible for the slowdown in foreign demand. Domestic demand, too, was less buoyant than originally expected. Despite falling unemployment in most countries, wage increases were limited. At the same time, the rise in inflation caused a sinking purchasing power.