Ottawa –The US economy is finally expected to break out of the sluggish growth that has plagued it since the end of the recession, according to The Conference Board of Canada’s US Outlook: Winter 2014.
Following growth of 1.8% in 2013, real gross domestic product (GDP) in the United States is expected to expand by 3.1% in 2014.
“Last year, the US economy was dragged down by restrictive fiscal policy,” said principal economist Kip Beckman. “The outlook for the US economy is brighter in 2014, thanks to improving labour markets and the ongoing recovery in the housing sector. In addition, the new budget deal recently reached by Congress will avoid another federal government shutdown and help the economic outlook.”
A combination of tax increases and spending cuts at the beginning of 2013 chopped about 1.5 percentage points from the US economy last year. In 2014, the public sector will only take roughly 0.4 percentage points out of the economy, thanks to a less restrictive fiscal policy.
US labour markets and housing sector are both on the mend. While US job creation stalled at the end of last year, it should rebound over the near term and we expect monthly job gains of more than 200,000 per month. Job growth in the US is forecast to increase by 1.8% this year and the unemployment rate should continue to drop.
Likewise, housing starts in the US surged toward the end of last year. Housing starts are expected to continue to increase at a strong pace over the next two years due to pent-up housing demand and rising home prices. At the same time, household spending is expected to grow by close to 3% in 2014.
A key risk for the US economy going forward is the winding down of the Federal Reserve’s bond buying program. If the tapering program does not go as anticipated, it could sharply increase interest rates on mortgages and other loans and hurt consumer spending and business investment.
The improved outlook for the US economy, coupled with the end of the recession in the eurozone, will boost global activity in 2014. Europe’s rebound will continue to be restrained by sovereign debt problems, high unemployment and tight credit conditions. Nevertheless, real GDP growth of around 1% is expected in the eurozone in 2014. The world economy is forecast to grow by 3% this year, following a gain of just 2.4% in 2013.