By Shrutee Sarkar
BENGALURU (Reuters) – A modest U.S. economic growth outlook has barely changed despite a majority of economists in a Reuters poll being “reasonably confident” an initial trade deal will be signed with China within the next three months.
While financial markets have see-sawed on the ebb and flow of headlines on a possible reprieve in the U.S.-China trade war, what happens over the coming year will depend on real progress being made, according to strategists in separate Reuters polls.
Similarly, economists said some form of a trade deal between Washington and Beijing was much needed for the U.S. economy as it has lost considerable momentum since the standoff began in earnest about a year and a half ago.
The Dec. 2-5 poll consensus of 100 economists showed annualized gross domestic product growth would range between 1.6%-1.9% in the quarters from here through to mid-2021, largely unchanged from last month and lower than 2.1% reported for the previous quarter.
The Federal Reserve’s preferred inflation gauge, core PCE prices, was expected to average 1.9% – a touch below the central bank’s target – in 2020 and 2021, unchanged from the previous poll.
“The economic outlook has brightened, or at least stopped worsening. We expect a tepid recovery to uninspiring trend growth, but with diminished economic and policy risks,” noted Ajay Rajadhyaksha, head of macro research at Barclays.
“Still, fewer downside risks do not imply upside growth surprises.”
While economists expect some form of trade agreement between the U.S. and China, they said what happens beyond any initial trade deal would dictate the course of the economy.
Thirty-two of 46 economists who answered an additional question said an interim trade deal between the U.S. and China would be signed within the next three months, seven respondents said 3-6 months and two said in 6-12 months.
Only five contributors said it would take over a year.
Of those 32 economists who expect a deal within the next three months, 19 said they were “reasonably confident” and one said “very confident.” Eleven contributors said they were “not confident” and one economist did not reply to the question.
“We expect at least a limited U.S.-China trade deal to be signed early next year that would forestall further tariff hikes, with a chance that some existing tariffs are also rolled back,” added Barclays’ Rajadhyaksha.
“Further resolution of U.S.-China trade negotiations could help, even though the news flow remains volatile at the time of writing.”
With growth and inflation tepid worldwide, most major central banks have eased monetary policy this year, including the Fed, which has cut interest rates three times in 2019.
But the minutes of the U.S. central bank’s October meeting showed policymakers were increasingly divided over whether a further rate cut was needed.
The latest poll showed the Fed would keep rates on hold at 1.50-1.75% at its Dec. 10-11 monetary policy meeting and stay on the sidelines until at least 2022.
That compared to a cut in the third quarter of 2020 predicted in the previous poll and by the interest rate futures market.
Still, nearly 70% of 45 respondents who answered a separate question said the Fed’s next interest rate move should be a cut. The others said it should be a hike.
“Assuming some sort of trade deal gets done and the economic expansion continues in line with projections, then we suspect the Fed will be on hold for a considerable period of time,” said Sam Bullard, senior economist at Wells Fargo.
(For other stories from the Reuters global long-term economic outlook polls package,)
(Polling by Sumanto Mondal, Sujith Pai and Sarmista Sen; Editing by Ross Finley and Chris Reese)