National Post (Latest Edition) - - FINANCIAL POST - SHOBHANA CHAN­DRA and RICH MILLER in Wash­ing­ton


The U.S. econ­omy is sprint­ing ahead of the rest of the world, at least for now. Spurred by solid con­sumer spend­ing — in­clud­ing May re­tail sales that topped fore­casts on Thursday — the U.S. is in­creas­ingly likely to rack up growth of at least four per cent in the cur­rent quar­ter af­ter a soso ex­pan­sion at the start of the year. In con­trast, euro-area cen­tral bankers trimmed their out­look for 2018, while China showed signs of slow­ing, and emerg­ing mar­kets from Brazil to In­done­sia have been buck­ling.

“The U.S. is ac­cel­er­at­ing, and just about ev­ery­one else is decelerating,” said Na­ri­man Behravesh, chief econ­o­mist at IHS Markit in Cam­bridge, Mass. “There’s no ques­tion in my mind that the U.S. is lead­ing the pack” and “it’s both a con­sumer and busi­ness story here.”

That con­trasts with last year’s pic­ture of syn­chro­nous growth across the world, which has given way to un­even paths for ma­jor economies amid trade ten­sions and ris­ing global oil costs. It also comes on the heels of di­verg­ing mone­tary-pol­icy ac­tions by cen­tral banks this week.

The Fed­eral Re­serve raised in­ter­est rates on Wednesday for the sec­ond time this year, with Chair­man Jerome Pow­ell say­ing the econ­omy is in “great shape.” Then, on Thursday, the Peo­ple’s Bank of China kept the cost of re­verse-re­pur­chase agree­ments steady, de­fy­ing pre­dic­tions it would track the Fed’s hike.

Hours later, the Eu­ro­pean Cen­tral Bank de­cided to ta­per bond pur­chases and pledged to keep in­ter­est rates un­changed at cur­rent record lows at least through the sum­mer of 2019, a longer time frame than in­vestors had priced in. ECB Pres­i­dent Mario Draghi pointed out that the re­cent eco­nomic “soft patch” may last longer.

In the U.S., the world’s largest econ­omy, lower taxes en­acted by the Trump ad­min­is­tra­tion, a strong labour mar­ket and el­e­vated con­fi­dence are help­ing cush­ion the pinch to shop­pers from higher fuel ex­penses. That’s bol­ster­ing prospects for house­hold con­sump­tion, which ac­counts for about 70 per cent of the econ­omy.

Re­tail sales, the lat­est snapshot of how U.S. house­holds are do­ing, rose 0.8 per cent in May, ac­cord­ing to a Com­merce Depart­ment re­port on Thursday. That topped fore­casts and prompted IHS Markit to boost its pro­jec­tion for sec­ond-quar­ter growth to a 4.4 per cent an­nu­al­ized pace from 4.2 per cent. JPMor­gan Chase & Co.’s chief U.S. econ­o­mist Michael Feroli pushed up his es­ti­mate to what he called a “boomy” four per cent from 2.75 per cent, while also lift­ing his fore­cast for an­nual U.S. growth.

Pres­i­dent Don­ald Trump is of­fi­cially tar­get­ing sus­tained 3 per cent growth but has of­ten talked about an even faster pace. At the same time, some an­a­lysts see the pace of growth cool­ing in the sec­ond half and next year as the ef­fects of tax cuts ebb, and many see the econ­omy’s speed limit as closer to two per cent.

Mean­while, the ECB’s up­dated fore­casts for the euro area showed eco­nomic growth should slow to 2.1 per cent this year, com­pared with its pre­vi­ous es­ti­mate of 2.4 per cent. In China, the world’s sec­ond-largest econ­omy, May data for in­dus­trial out­put, re­tail sales and in­vest­ment all came in below an­a­lyst pro­jec­tions.

Behravesh, of IHS Markit, ex­pects global growth of 3.3 per cent this year based on mar­ket ex­change rates, with the U.S. mak­ing a 0.6 per­cent­age-point con­tri­bu­tion, the hefti­est one among de­vel­oped economies and just be­hind the 0.8-point con­tri­bu­tion he’s pen­cilled in from China.

The de­cou­pling by the U.S. fol­lows an ac­cel­er­a­tion in growth last year across about 120 economies, ac­count­ing for three-fourths of world GDP, which the In­ter­na­tional Mone­tary Fund de­scribed as the broad­est syn­chro­nized global up­surge since 2010.


The Fed­eral Re­serve raised in­ter­est rates on Wednesday for the sec­ond time this year, with chair­man Jerome Pow­ell say­ing the econ­omy is in “great shape.”


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