21 Aug 2018

Trade war unlikely to derail growth of US economy

9:40 am on 21 August 2018

The world's biggest economy is in good shape and in no danger of recession and under no threat from any trade war, according to a senior economist at leading ratings agency, S&P Global.

Turkish flag, European Union's flag and US flag float in the wind at the financial and business district Maslak in Istanbul.

Fears the US economy might suffer as a result of recent trade tensions are unlikely to prove true, a senior economist says. Photo: AFP

The agency's chief United States economist, Beth Ann Bovino, said there was little chance that United States' growth was going to stumble because of the current trade tensions with China, the European Union, and its North American neighbours.

She said growth in the US was set to be around 3 percent this year and only slightly below that next year, and that would help to sustain global economic activity as well.

"The worry, of course, is that fiscal spending that the US government put in place starts to filter out of the system could see the United States growth rate go back to below 2 percent, and if you have trade disputes that's when it starts to weigh."

She said growth slowing to 2 percent was not "recession territory".

Ms Bovino said the concern would be that the spending increases inflation pressures, which would prompt the Federal Reserve to push on with interest rate hikes and could hit growth.

The Fed has already raised rates twice this year and signalled a further two before the end of the year and three more rises next year.

"Expansions don't necessarily die of old age, they're usually murdered, and the prime suspect is the Fed," Ms Bovino said.

In contrast, the Reserve Bank of NZ earlier this month pushed out its timetable for any rise in rates to well into 2020, and said in some circumstances the next move may even be a rate cut.

Ms Bovino said in the short term New Zealand might benefit from any serious trade war between the US and China, but in time such hostilities would weigh on world growth and hurt small, open economies such as New Zealand.