WASHINGTON — President Obama sent an economic report to Congress on Monday projecting steady growth for the U.S. economy over the next few years, buoyed by modest employment and wage growth, but also warning of headwinds from a global slowdown that could put pressure on U.S. exports.
The 2016 “Economic Report of the President,” written by the Council of Economic Advisers, predicted the economy will grow 2.7 percent in 2016; 2.5 percent in 2017 and 2.4 percent in 2018.
“These growth rates exceed the administration’s estimated rate of potential real GDP growth over the long run of 2.3 percent a year,” the report said.
The report also noted that unemployment is likely to fall to 4.5 percent by the fourth quarter of the year and remain at that level before “ticking back up” to 4.6 percent in the fourth quarter of 2017.
Core inflation, excluding food and energy prices, will remain low, “partly due to declining import prices and constraints during the next four quarters.”
“For consumers, a pickup in nominal and real wage gains in 2015 — together with strong employment growth — will probably boost spending in 2016,” the report said. “These income gains — following a multiyear period of successful deleveraging — leave consumers in an improved financial position.
The council forecast that business investment this year “shows brighter prospects for growth in 2016 than in earlier years as the overhang of excess capital that suppressed investment earlier in this expansion has been reduced.”
“As the economy continues to grow, businesses will need new facilities, equipment and intellectual property to meet growing demand,” the report noted.
However, headwinds from a global economic slowdown could impact the U.S. economy, the report warned.
“Although most domestic signals are positive, the United States faces headwinds from abroad,” the report said. “The available indicators suggest that the economies of Brazil, Canada, China, India and our euro area trading partners are growing slowly.”
As a result, the trade weighted average of foreign GDP growth in 2015 was slower than in 2014 and slow global growth is forecasted this year.
“Weakness abroad not only reduces our exports, but also raises risks of adverse financial and other spillovers to the U.S. economy,” the report said.
The nominal U.S. trade deficit in goods and services narrowed to 3 percent of GDP in 2015 from 3.1 percent in 2014, while the trade deficit widened slightly to $531.5 billion from $508.3 billion in 2014, “as goods exports fell faster than goods imports and trade in services remained almost stable, reflecting the global headwinds discussed,” the report said. “Until very recently, real exports were consistently increasing, so the decline demonstrates that our economy is growing faster than global demand for U.S. goods, another manifestation of the headwinds.”
“Slower global growth in 2015 was both a product of longer-term supply — slower productivity growth and slowing labor force growth — and demand factors — weak investment growth and longer-term demand slowdowns,” the report said. “In addition, though, continued cyclical weakness in many areas of the world combined with a sharp emerging-market slowdown produced the slowest global growth rate since the recovery from the global financial crisis began.”
The council said the U.S. has been a “relative bright spot” in the world economy approaching full employment levels gradually and “generating substantial portions of global demand.”
But forecasts for global headwinds continue to “weigh on U.S. growth in the near future — which is why both strengthening the U.S. economy to ensure it is more resilient while working with partners abroad on their growth is a key priority for the President,” the report said.
The report seeks to provide an economic basis for the president’s policy initiatives and many were highlighted throughout. One of those areas touted in the report was the 12-nation Trans-Pacific Partnership trade deal involving the U.S., Australia, Japan, Mexico, Canada, Vietnam, Malaysia, Peru, Singapore, Chile, Brunei and New Zealand that seeks to remove barriers of trade to encompass nearly 40 percent of the world’s gross domestic product if enacted.
“The challenging environment for U.S. exports is an important motivation for the President’s trade agenda, including the Trans-Pacific Partnership agreement, which was closed in October…and the Trans-Atlantic Trade and Investment Partnership negotiations [between the U.S. and European Union] currently in progress, as well as a number of other initiatives,” the report said.
Delaying its implementation by even a year could cost the economy $94 billion, the report said, citing a report released by the Peterson Institute for International Economics.
“Delay or failure to implement TPP risks substantial costs,” the report said. “Exporters may watch new opportunities to expand delayed or missed.”