Fannie Mae: Upside Offsets Downside, Keeps Economic Growth on Pace

Looming geopolitical tensions and the growing potential for a U.S. government shutdown as well as a technical default pose risks to the economy but are not expected to derail full-year growth of 2.0 percent, according to the Fannie Mae Economic & Strategic Research Group’s August Economic and Housing Outlook.

Fannie Mae reported the economy grew 1.9 percent on an annualized basis during the first half of the year, slower than the expected 2.1 percent in the prior forecast. However, the second-half outlook is slightly stronger, with consumer spending and business investment helping to support growth. After subtracting sizably from growth last quarter, residential investment also will likely be a modest contributor during the second half of the year.

“We are keeping our full-year economic growth outlook at 2.0 percent as risks to our forecast are roughly balanced,” said Fannie Mae Chief Economist Doug Duncan. “On the upside, consumer spending growth might not moderate as much as we have accounted for in our forecast. A build-up in inventory also should be positive for growth this quarter and nonresidential investment in structures will likely continue to improve as oil prices stabilize.”

Duncan noted the decline in the dollar and a pickup in global growth should support manufacturing and exports, although the outlook for the trade sector is clouded by uncertainty surrounding trade policy. Headwinds include tax policy uncertainty that could delay business investment, the risk of a partial government shutdown this fall if Congress fails to pass spending appropriations, a technical default if the debt ceiling isn’t raised, and an increase in global political unease.

“However, we believe these headwinds and tailwinds essentially net out overall,” Duncan said.