The Two Things That Could Halt Economic Growth

The economy has been growing slowly but steadily this cycle. In fact, we are in one of the longest recovery cycles in history. However, there are some concerns lurking ahead that could detour future growth. According to Mario O. Moreno, senior economist at Drewry, his biggest concerns for the economy are shifts in monetary policy from the Federal Reserve and a potential trade war. Moreno spoke at the Pulse of the Ports conference, predicting 2.8% economic growth this year; however, during the closing roundtable discussion he revealed that these two events that are giving him pause.

“There are certainly some risks,” Moreno said in the roundtable. “Two come to mind: monetary policy and a trade war. First, The Federal Reserve could either tighten monetary policy a little too much or it could be a little too late, in which case inflation could get out of control. A trade war could delay US economic expansion. If the United States either deliberately or not enters into a trade war with Canada, Mexico, China or the European Union, we could certainly see damaging consequences for the US economy.”

While Moreno said the impact of a trade war would be harmful to economic growth, he also projected healthy trade between Asia and the US this year. He forecasts a 7% increase in cargo volumes coming from Asia into the country, saying that a trade war would have a bigger impact on China than the US. However, the potential for a trade war reaches beyond trade relations with China. Moreno names the potential for trade issues with Canada, Mexico and the European Union.

Moreno said that these policies can have significant impacts on the economy. As an example, he said that leaving NAFTA would reduce economic growth. “Just by leaving NAFTA, some estimates show the economic growth is cut by half a percentage point,” Moreno explained. “So, instead of growing 2.8% this year, our economy would grow by 2.3% just by leaving NAFTA.”

Overall, Moreno’s economic outlook this year is strong. Consumer spending has been the major driver of economic growth, and it will continue this year. Moreno says that low unemployment, rising incomes and rising household wealth are also contributing to economic growth. “The outlook is positive this year, but it is difficult to say if this expansion is going to be the longest ever in history,” said Moreno. “There are positive factors that are driving the economy this year and beyond.”