Risks to the Forecasts
There are many risks to the forecast. The Chinese economy continues to languish, reducing world economic growth. Unanticipated stubbornness in inflation in key sectors of the economy could cause the FED to delay reducing interest rates. Credit conditions associated with strains on bank balance sheets and higher borrowing rates could dampen consumer spending growth. S&P Global assigns a probability of twenty percent to its pessimistic scenario in which real GDP grows 0.4 percent instead of the baseline forecast of 1.6 percent in 2024. On the other hand, the economy could outperform expectations. The second quarter real GDP estimate released after the July forecast by S&P Global reveals a stronger-than-expected economy. The economy posted 2.8 percent quarterly growth in real GDP, exceeding the forecast by S&P Global of 2.1 percent. The growth was propelled by business investment in buildings and equipment and rebuilding of inventories. Consumption spending also rebounded from 1.4 percent growth in the first quarter to 2.3 percent in the second quarter. Continued stronger-than- expected growth could delay the FED’s policy switch to easing interest rates until 2025.
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