The Fed’s interest rate cuts, a truce in the trade war, and a more positive global backdrop have all set the stage for an acceleration in economic growth this year. We calculate that GDP growth was a modest 2.0% annualised in the fourth quarter, as a pick-up in investment growth was offset by a further slowdown in consumption growth. But over the course of 2020 we expect continued solid job gains, high consumer confidence and loose financial conditions to drive a recovery in consumption growth. Meanwhile, the big drop in interest rates last year means business investment growth is likely to turn higher, echoing the upswing already underway in residential investment. (See Chart 1.) With wage growth muted and productivity growth accelerating gradually, inflation should remain stable even as the economy heats up.
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