Strong Dollar Drags U.S. Growth To Slowest Pace Since 2011

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The U.S. economy slowed last year registeing its worst performance since 2011 after the strong dollar sent exports tumbling and encouraged American businesses to import cheaper components from abroad. However, this worsened trade position was offset by increases in consumer spending and business investment
that analysts said would hand President Donald Trump a strong and growing economy.


The Department of Commerce stated that USnational income (GDP) expanded at an annualisedrate of 1.9%, down from 3.5% in the third quarter and below analysts’ forecasts of a
2.2% increase.

For 2016 as a whole, the economy grew 1.6%, losing top spot in the G7 group of industrialisednations to the UK’s 2%.

It was the worst showing since 2011 and down markedly from 2.6% growth in 2015.Analysts stated that the uncertainty surrounding the outcome of last year’s presidential election and the UK’s Brexit vote meant that forecasts of trade and GDP growth were becoming cloudy and less predictable.

The slowdown, even if it proves temporary, could also deter the Federal Reserve – the US Central Bank – from raising interest rates again until the picture becomes more certain. Trump and his treasury secretary, Steve Mnuchin,
have insisted that the US economy can expand at a faster rate than under the Obama
administration.

Mnuchin, a former financier at Goldman Sachs, said last year after his nomination that GDP growth of 4% would be achievable once Congress implemented a series of tax cuts and
spending plans put forward by Trump.

But the high value of the dollar, which has hit exports, and Trump’s threat to implement protectionist
measures, including a 20% tariff on all Mexican imports to fund a border wall, have created uncertainty and dented Wall Street optimism for higher growth in 2017.

Exports slumped by 4.5% in the last three months of the year with most of the hit coming from disappointing soybean sales, which rose sharply in the third quarter after a poor soy harvest in Argentina and Brazil before falling back to more normal levels.

America’s poor trade performance subtracted 1.7 percentage points from growth in the final three months of 2016.

Nevertheless, consumer confidence has remained elevated and consumer spending, which accounts for 70% of economic
growth, increased by 2.5% in the last three months of 2016 while business investment nudged 2.4%
higher to register its best performance in more than a year.

With a labour market that some economists say is at – or close to – full employment, the outlook for the economy remains bright, say some analysts.

Wages are rising, housing construction is robust and banks are well placed to increase lending. Promised infrastructure spending by the Trump administration and the repatriation of factories by some of the biggest companies in the US are also expected to give the economy a short-term rush of activity.

House construction, which had been falling for two quarters, rebounded in the fourth quarter, rising at an annual rate of 10.2% while govern-

Source: Zenith Bank

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