Strong second quarter unlikely to be repeated

Our calculations suggest that second-quarter GDP growth was as strong as 4.5% annualised, driven by a rebound in consumption growth and a big export-fuelled contribution from net external trade. It should be all downhill from here, however. The dollar’s recent resurgence and the retaliatory tariffs imposed by other countries will begin to weigh on exports from the third quarter onwards. Domestic demand growth will slow gradually, as the boost from the tax cuts fades and higher interest rates bite harder. By the second half of next year we expect GDP growth to be running at less than 2% annualised, with growth slowing enough to prompt the Fed to begin cutting interest rates again in 2020.