Despite the weaker housing numbers of late, the economy is still projected to grow, according to analysts from Nomura Global Economics.
In its “The Economy Next Week” report published Friday, Nomura’s analysts predict that the U.S. gross domestic product will grow 1.5% year-over-year in 2014 and will more than double that growth (3.1%) in 2015.
Nomura cites positive business sentiment, which “points to a rebound in business investment in coming quarters,” as a primary driver of the prediction.
It's good news as the latest GDP data showed that the U.S economy actually shrank in the first quarter. The revised first-quarter contraction was the biggest decline since early 2009 when it hit -6.9%, and contrasts with the previous estimate of a 1% contraction.
Mainstream financial analysts and pundits predicted a 2.6% growth in the first quarter of 2014, making it a nearly 5% swing.
On Wednesday, the June Federal Open Market Committee minutes showed the Federal Reserve is considering ending its taper of asset purchases in October. Nomura’s analysts expect the Fed will follow through with those plans and end the asset purchase program in “autumn 2014.”
Nomura’s analysts then expect the first rate increase in 2015’s second quarter, which could spur GDP growth, as the cost of lending and what businesses are will to pay for credit, will rise across the board.
“The FOMC viewed the sharp decline in growth in Q1 as an aberration and its forward-looking views on growth had not changed,” Nomura’s analysts said. “There was also a discussion of why the participants interest rate projections remain well below the long-term forecasts at the end of 2016. Bottom line is that we got somewhat more on exit strategy than we expected.”
But the analysts advise that the GDP growth will not come based on the housing market. “Slow household formation and tight lending standards for mortgages remain the major headwinds for residential investment,” Nomura’s analysts said.
The analysts also cite the potential for tighter financial conditions, ongoing policy uncertainty and the pace of global growth as the key risks to the projected growth.