The presidential elections are coming up in the United States this year. This is reason enough to take a closer look at the US economy. The US economy proved remarkably resilient last year. It probably grew by two and a half percent. That is significantly more than many European economies, which grew only slightly or – like the German economy – even shrank a little. The US economy can also be expected to be a growth engine in the medium term. A look back shows that it often digests crises more quickly than many European economies. For example, the US economy has overcome both the financial crisis and the economic consequences of the pandemic more rapidly than the eurozone. As a result, gross domestic product in the US has grown by more than thirty percent since the outbreak of the financial crisis. By contrast, economic output in the eurozone has only increased by around twelve percent in fifteen years.
In the first quarter of 2024, gross domestic product expanded by a solid 0.4% in the United States (annualized 1.6%). However, there was an economic slowdown compared to the second half of 2023, in which the US economy had expanded extremely strongly. Growth at the start of the year was supported by private consumption, which increased by 0.6%. Corporate investment also increased noticeably. Investment activity continues to be stimulated by massive government subsidies for semiconductor factories and renewable energy production. The downturn in residential construction investment that began in 2021 has come to an end. Moderate growth was already recorded again in the second half of 2023, which accelerated in the first quarter of 2024 with an increase of 3.3%. With the global economy still weakening, foreign trade did not provide any impetus for the US economy: exports grew at a much slower rate than imports.
In the current second quarter of 2024, the economy in the United States will continue to expand at a somewhat subdued but still solid rate. However, private consumption is likely to support the economy somewhat less. Many households have probably used up the savings accumulated during the pandemic and inflation remains elevated. Retail sales have recently continued to rise, albeit only moderately. Consumer sentiment has recently deteriorated again after a long phase of continuous improvement. Companies have also recently become somewhat less optimistic again. The situation in the service sector remains slightly better than in the industry. In view of the weakening global economy and higher interest rates, industry will not provide any strong impetus for the US economy for the time being.
The US economy will probably continue to grow quite robustly in the remainder of 2024, even if growth rates are likely to remain moderate. Private consumption is being supported by the good situation in the labor market. The unemployment rate in April was a low 3.9% and 175,000 new jobs were created. Corporate investment is likely to remain more or less constant at a high level, also in view of government support programs. Towards the end of 2024, slightly falling interest rates should then improve financing conditions and stimulate companies‘ willingness to invest even more. Residential construction investment will also increase again and give the US economy a noticeable boost in 2025.
No new impetus for the US economy can be expected from fiscal policy for the time being. However, the federal budget deficit will probably still be well above five percent of gross domestic product. The Inflation Reduction Act passed in summer 2022 and other support programs for the expansion of semiconductor production and infrastructure will continue to have a noticeable positive economic impact. Uncertainties about the future economic policy of the United States emanate from the presidential and parliamentary elections in November this year. If Donald Trump were to be re-elected president, an unpredictable and confrontational political style could be expected.
Monetary policy has rapidly become more restrictive since spring 2022, which has probably contributed noticeably to a gradual decline in high inflation rates over the past year. Since the beginning of the year, however, inflation rates have remained well above the central bank’s two percent target. Compared to the same month last year, inflation in April was still at 3.4 percent. Core inflation, which excludes energy and food prices, rose by 3.6% compared to April 2023. Against this backdrop, the central bank will probably leave its key interest rates at the current level until the fall. Only then can the first slight interest rate cuts be expected.
All in all, the US economy is likely to grow by a solid 2,4 percent this year. The US economy can also be expected to continue expanding in 2025 at a growth rate of 2,0 percent. Inflation will still be noticeably higher in 2024 at an annual average of 3,0 percent but will fall to around two percent in 2025.
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