At our monthly forecast meeting, we lowered our 2015 US GDP growth forecast from 2.8% to 2.3%. Nevertheless, we are still assuming that the US economy will far out-perform the euro zone. We hold to our view that the economies will continue to show divergent paths because the US economy has made much greater progress than the euro zone in reducing imbalances. In addition, we are not convinced by the alleged initial success of the ECB’s QE programme, whilst at the same time the US economy started the second quarter on a solid footing. The euro is likely to resume its decline versus the dollar. Bund yields, which have recently risen sharply, can be expected to fall again in the summer.
Lower growth forecast for US While there was in effect no US GDP growth in the first quarter, the euro zone economy expanded by 0.4% versus the final quarter of last year (which corresponds to a US-style annualised growth rate of 1.6%). This undermined the market conviction that the US would continue to clearly outperform the euro zone. On the surface, our forecast numbers appear to have backpedalled from this divergence thesis, since at our monthly forecast meeting we cut our 2015 US growth forecast from 2.8% to 2.3%. In order to maintain the old forecast in the wake of the disappointing first quarter, we would have had to assume unrealistically high second-quarter growth rates.
In contrast, though, we have confirmed our euro zone growth forecast of 1.2%. USA ahead with reducing economic imbalances Nevertheless, we still expect the US economy to perform far better than its euro zone counterpart over the coming quarters, as the US has progressed much further in the task of reducing economic imbalances: Debt: US private sector debt (nonfinancial corporates and private households) relative to GDP has dropped sharply since 2009 and is back at the level last seen at the beginning of the house price boom (chart 1). The main reason for this success is that private households have significantly raised their savings ratio in the wake of the housing bubble bursting. The fact that US households have repaired their balance sheets is one indication that they are likely to be willing to take on new debt. However, debt accumulation is expected only occur on a moderate scale, as so far debt levels have not grown more rapidly than disposable income. By comparison, the euro zone private sector debt ratio has barely fallen and is still well above the 2004 level, when the pace of debt accumulation began to accelerate. The euro zone is evidently lagging behind when it comes to balance sheet repair, which is affecting consumption and investment.
