Fannie Mae predicts strong economic growth despite mounting risks

But revises forecast down slightly

Even as downside risks mount, Fannie Mae continues to predict strong economic growth for 2018, according to its Economic and Strategic Research Group’s April 2018 Economic and Housing Outlook report.

Fannie Mae predicts full-year economic growth for 2018 will come in at 2.7%. While it explained its forecast remains strong, despite the downside risks stemming from trade policy, the company decreased its forecast slightly from 2.8% annual growth in March.

This decrease stemmed from lackluster consumer spending in January and February, following an unsustainable fourth-quarter pace. However, the company expects tax refunds and reduced withholdings will once against boost consumer spending in March and the months ahead.

“While first quarter consumer caution drew down our 2018 growth forecast a tick, we still forecast growth to come in at a solid pace,” Fannie Mae Chief Economist Doug Duncan said. “However, downside risks are emerging – the most notable being the increasingly heated rhetoric on trade.”

“If rhetoric becomes reality, a trade war could reverse much of the upside from recently passed fiscal stimulus, or it could trigger an even worse outcome: recession,” Duncan said. “Threats and counter-threats aside, economic growth should pick up this quarter amid a rebound in consumer spending and business investment growth, in addition to a healthy labor market.”

The GSE pointed out that other factors of the economy remain strong, including a healthy income growth, optimistic consumer and business sentiments and fiscal stimulus stemming from tax reform and the federal spending bill.

“Soft residential investment last quarter should prove temporary, as home sales resume their slow upward grind, with inventory shortages playing friend to prices but foe to affordability and sales,” Duncan said.

Fannie Mae continues to predict two more interest rate hikes in 2018, including one in June, with risks on both sides from inflation picking up or restrictive trade policy hampering growth.

3d rendering of a row of luxury townhouses along a street

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