Key Takeaways
“The advance estimate of US 1Q GDP surprised on the downside with a 1.4% q/q SAAR contraction, the first decline in nearly two years since 1Q 2020, from an 6.9% expansion in 4Q 2021. While private consumption expenditure (PCE) and business spending supported growth, the larger drags came from the net exports of goods and services, the reversal of private inventories and weaker government consumption and investment.”
“The lower than expected 2.7% PCE increase coupled with the lower savings rates in 1Q, was seen as a sign on how the accelerating inflation is eating into spending, and this is something that will need to be monitored as inflation is likely to accelerate further in 2Q, which could further impair spending.”
“With the unexpected magnitude of the drag of net exports and the reversal of private inventories resulting in the weaker growth outcome in 1Q, we will further lower our US GDP growth forecast for 2022. While growth is lowered, it remains above US potential and we are not expecting US to enter into a recession in the next 6-12 months, as we note that the US employment situation remains favorable with good wage growth, still significant excess household savings, and potentially new investments into US energy sector while the Russia-Ukraine conflict is likely to have a greater impact on US inflation compared to its growth. We now expect GDP growth to be lower by 0.3ppt to 3.0% in 2022 (from previous forecast of 3.3%) before easing further to 2.3% in 2023 (unchanged from previous forecast).”
