Softening trade tension, Fed accommodative policy spur growth in the U.S… Nigeria and other emerging markets may see spillover benefits

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Preliminary estimate released by the U.S. Bureau of Economic Analysis (BEA) this week shows that the U.S. economy grew by 3.2% in the first quarter (Q1) of 2019, beating analyst projection of a 2.1% – 2.5% growth band.

This in dollar terms translates to a $197.6 billion quarterly expansion in the U.S. GDP size (which is now $21.06 trillion) and was the fastest Q1 growth since 2015. Interestingly, the U.S. GDP growth is the second to beat consensus estimates in the last two weeks (after China’s 6.4% growth for Q1’19), and it is coming barely a month after the World Bank and the IMF further revised down global, U.S., China and several countries growth projection for 2019 over concerns on lingering trade tension and possible further monetary tightening in the U.S. and other advanced economies.

Nonetheless, there has been a shift in the position of the two world powers (U.S. and China) since the turn of the year, and these we believe impacted their faster growth in Q1’19. For instance, officials of the U.S. and the Chinese government have had a number of fruitful trade talks since January 2019, and this has refrained both countries from imposing new rounds of tariffs since November 2018. The impact of this we noticed, caused a 5.1% reduction in the size of U.S. trade deficit (from $955.7bn in Q4’18 to $899.3bn), and this in-turn impacted the contribution of Net exports of goods and services to the Q1’19 growth (contributed 1.03% to GDP as against -0.08% in Q4’18).

Also, the U.S. Federal Reserve earlier in January 2019 announced that it will hold back its planned multiple interest rate hikes in 2019 as financial tightening has become less supportive of growth in the near term. As such, the U.S. Federal Reserve had since January 2019 left its benchmark rate unchanged at the range of 2.25% – 2.50%. This decision we believe spurred gross private domestic investment in Q1’19, as it grew by 5.1% as against 3.7% in Q4’18. Going forward, we see the current growth drivers in the U.S. (if sustained) causing positive spillovers into Nigeria and other emerging markets in the form increased portfolio investment, higher remittances and reduced foreign exchange pressure in the near time.

 

GTI RESEARCH