WASHINGTON — Business economists are expressing optimism that tax cuts and increased government spending will accelerate economic growth over the next two years.
The latest survey by the National Association for Business Economics projects that the economy will grow 2.9 percent this year. That would be the best performance in three years, up from the NABE's forecast of three months ago, which envisioned 2.5 percent growth this year.
Since the NABE's previous forecast, President Donald Trump pushed a $1.5 trillion tax cut through Congress, and lawmakers reached a deal to raise spending for the military and domestic programs by $300 billion over two years.
Collectively, the NABE forecasters think the tax cut and spending increase will add 0.45 percentage point to growth this year and 0.3 percentage point in 2019. The economists predict that the economy, as measured by the gross domestic product, will expand at a solid 2.7 percent in 2019, according to the new forecast being released Monday.
“In large part, the increase in growth prospects appears related to federal fiscal policies,” said David Altig, director of research for the Federal Reserve Bank of Atlanta and chairman of the NABE forecasting group, which based its outlook on responses from 51 forecasters.
Some economists have been upgrading their estimates for GDP growth. Still, most of them envision the benefits from the tax cuts and increased spending fading after a couple of years.
The Trump administration insists that its economic policies will accelerate growth to sustained annual rates of 3 percent or more — an assertion that a majority of economists consider unrealistic. Many analysts expect annual economic growth to slow to a subpar 2 percent rate over the next decade.
Other highlights of the latest NABE forecast:
- Unemployment, which averaged 4.4 percent last year, will decline to an average 3.9 percent this year and 3.8 percent next year.
- Inflation will remain modest, with consumer price inflation rising from 2.1 percent last year to 2.2 percent both this year and in 2019.
- The federal budget deficit will surge as a result of the tax cuts and additional government spending. Last year's deficit of $665 is projected to reach $775 billion in the current budget year, which ends Sept. 30, and $1.02 trillion next year.
- The risk that a recession will begin this year is low, with fewer than 7 percent of the forecasters putting the likelihood at more than 25 percent. The three key downside risks were seen as a stronger dollar that hurts U.S. exports, weak pay growth and faster-than-expected inflation.
- The Federal Reserve, having raised interest rates modestly this week, will do so twice more this year. The Fed itself also envisions three rate increases this year.