US Macro: We downgrade our 2019 growth forecast – Despite a solid Q4 GDP print last week, growth momentum in the US looks to be slowing significantly into 2019. As a result, we are lowering our growth forecast for this year by 0.4pp, to 2.3% from 2.7% previously. For much of 2018, the US appeared immune to the global manufacturing downturn, which has surprised with its length and intensity, while the more export-dependent eurozone has borne the brunt of the slowdown. However, the ISM manufacturing PMI fell significantly in late 2018, and has continued to fall into 2019. Meanwhile, global activity has weakened further, and this is now feeding through into significantly lower US exports. The December trade data, released today after government shutdown-related delays showed non-petroleum exports plunged 1.5% mom sa, while annually, exports were down -2.0% yoy in December, the first negative print since late 2016. With the downturn in global manufacturing likely to persist over the coming quarters, US exports are likely to face further headwinds in the near-term.
A further reason for our growth forecast downgrade is the impact of the government shutdown. The direct effects of the shutdown, in delayed pay and lost consumption, were likely small – around 0.2pp in annualised growth in Q1. However, the harder-to-quantify indirect effects were probably bigger. These include, but are not limited to: confidence effects (consumer confidence weakened sharply during the shutdown), delays to tax refunds, the impact on contractors and service providers to government from reduced procurement, business activity affected by a slowing in regulatory approvals, and the freeze in government spending increases in the departments not affected by the shutdown. All told, we think the negative impact on Q1 GDP growth could be closer to 1.0pp annualised, although some of this will be made up in Q2 and Q3. (Bill Diviney)