In the latest Economic and Housing Outlook report from Fannie Mae’s Economic and Strategic Research (ESR) Group, modest economic growth still is expected for the remainder of 2016 and 2017, despite federal administration changes that pose new uncertainties about the economy.
Fannie Mae Chief Economist Doug Duncan said in a news release that the ESR Group expects improved economic growth in the second half of 2016, averaging 2.4 percent, with the full-year forecast for 2016 remaining at 1.8 percent.
“We haven’t changed the general tone of our forecast at this time, but we will incorporate new policy assumptions as they become more concrete,” Duncan said. “Given campaign themes, we may see some changes in policies regarding corporate and individual tax rates, infrastructure investment, government spending, health care and immigration.”
The 2017 forecast anticipates full-year growth of 1.8 percent, matching 2016, with a slight dip to 1.7 percent growth in 2018.
“Depending on the incoming president’s policy priorities, our forecast for 2017 is subject to both upside and downside risks,” Duncan said. “For example, we expect near-term growth would get a boost from any tax cuts and spending increases that are made, but if new policies result in sharply higher tariffs on China and Mexico, rethinking the Trans-Pacific Partnership, and renegotiating the North American Free Trade Agreement, it would likely drag on growth.”
Still, uncertainty about federal policy and changes going forward will be a drag on potential growth in Fannie’s forecast, Duncan said.
“In our fourth quarter GDP forecast, we expect domestic sales to strengthen and business investment in equipment to rebound, given a recent improving trend in core durable goods orders. However, we don’t anticipate a substantial turnaround going forward given the uncertainty of government policy facing businesses,” he said.
Fannie’s ESR Group does expect the housing market to improve, with housing starts up slightly in the fourth quarter from the third quarter, and total home sales just slightly behind pace.
“We also expect that residential investment will no longer drag on GDP as single-family construction spending has showed signs of stabilizing,” Duncan said. “However, the lack of homes for sale, particularly at the lower end of the market, continues to be a significant challenge for housing. Demand from first-time buyers has increased with household formation and is outpacing supply, leading to significant price increases and affordability challenges for entry-level buyers.”