The US economy’s growth is projected to slow to a 0.9 per cent pace this year, less than half that of 2022, according to the KPMG Global Economic Outlook report released recently.
After a solid start, the economy is expected to suffer a mild contraction mid-year. The unemployment rate is expected to modestly rise.
Escalating geopolitical tensions, a hardening of country borders, climate change and aging demographics have combined to make the economy more susceptible to supply shocks and prone to bouts of inflation, the report said.
Consumer spending is expected to stall but not collapse. Tighter credit market conditions are eroding affordability and will take a toll on employment, especially among younger, smaller businesses that are more susceptible to the current tightening of credit market conditions, it said.
Prices in the service sector, where labour costs play a larger role in setting prices, are starting to look sticky. The Federal Reserve will continue to raise rates and keep monetary policy restrictive well into 2024, the report noted.
Firms that benefitted most from the pandemic-induced boom are pulling back; tech, finance and manufacturing activity are hardest hit. Start-ups and firms that were late to the recovery are still ramping up.
The challenge for the Federal Reserve is to balance the need to cool the economy with the need for financial stability, the KPMG report added.