US Economic Forecast Downgraded, According to EIU

Following official downward revisions to second-quarter US gross domestic product (GDP) data, the Economist Intelligence Unit (EIU) has downgraded its forecast for the US in 2010 to 2.3% (from 2.8% previously). THE EIU forecast for 2011 is unchanged at 1.5%. Frail labour and housing markets suggest that domestic demand in the US will remain weak in the short term, and any further fiscal stimulus is likely to be too small to have a significant impact on growth.

Following the downward revision to the US growth outlook, the EIU has also pushed out its forecast for US monetary policy tightening – it does not now expect the Federal Reserve to raise its target for the federal funds rate until 3Q12. Previously it had expected the Fed to raise rates in the first half of 2012. The EIU forecasts that the European Central Bank (ECB) and the Bank of Japan (BoJ) will also be raising rates in the second half of 2012.

Notwithstanding the euro’s strength against the US dollar in recent weeks, EIU maintains its forecast for a weaker euro over the medium term against the US currency, as concerns about debt default and the viability of the eurozone resurface.

After a strong performance in the first half of this year, EIU forecasts growth of 7.8% in Brazil in 2010. If achieved, this will be Brazil’s fastest expansion in decades. Growth is being driven by a combination of an increase in the labour force, higher wages and an expansion of credit.

Robin Bew, editorial director at the EIU, said: “The new Global Forecasting Service is the first in an exciting new generation of online services that will help organisations get a clearer picture of the world around them. We are particularly pleased that this new site allows us to offer subscribers our forecasts in a variety of formats, from traditional text-based reporting to interactive charts, video and webinars.”


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