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SIFMA Roundtable of Economists Unveils End-Year 2016 Economic Outlook

Release Date: December 12, 2016 
Contact: Carol Danko, 202.962.7390, cdanko@sifma.org 

SIFMA Roundtable of Economists Unveils End-Year 2016 Economic Outlook

Washington, DC, December 12, 2016 – SIFMA's Economic Advisory Roundtable forecasted that the U.S. economy will grow 1.6 percent in 2016, strengthening to 2.2 percent in 2017. The current outlook for 2016 and 2017 gross domestic product (GDP) is slightly weaker than the Roundtable's mid-year prediction, although the range of the 2017 forecast is wider and skewed more to the upside.

"While there are many fiscal and trade policies to be determined in the Trump Administration, the SIFMA panel expect a break in the fiscal log jam toward stimulus and the release of business 'animal spirits' from their regulatory cages will accelerate economic growth in 2017 with potential skewed to the upside," said Stuart Hoffmann, SVP and Chief Economist, PNC Financial Services Group and chairman of SIFMA's Economic Advisory Roundtable.

The Economy:  
The median end-year forecast called for 2016 GDP to grow by 1.6 percent on a year-over-year basis and for 2017, by 2.2 percent on a year-over-year basis. Employment is expected to continue to improve slightly, with the unemployment rate expected to fall from an average of 4.9 percent in 2016 to 4.7 percent in 2017.  Employers are expected to add 2.2 million workers to their payrolls in 2016, falling slightly to 1.9 million in 2017.   Estimates for business capital investment for full-year 2016 remained the same as mid-year, while the outlook weakened considerably for 2017. The outlook for state and local government spending also weakened to 0.9 percent in 2016 and 1.0 percent growth estimated in 2017.  

The forecast for "headline" inflation, measured by the personal consumption expenditures (PCE) chain price index, was 1.1 percent for 2016, rising to 1.9 percent in 2017.

Monetary Policy:  
All but one respondent expect the Federal Open Market Committee to hike the Federal Reserve's target rate range at the December 13-14, 2016 meeting. Respondents' rate hike expectations were not impacted by the results of the presidential election, although a handful admitted they did wait to see how the markets reacted. For 2017, 75 percent of respondents expect two additional rate hikes. 

A couple of respondents noted that the composition of the Board of Governors would be influential: "[President] Trump will pick as many as 5 Fed governors by the end of 2018."

Risks to Growth: Fiscal Stimulus, Deregulation and Tax Reform on the Upside; Trade Protectionism and Restrictive Immigration on the Downside 
Business confidence was considered the most important factor impacting U.S. economic growth, followed by U.S. fiscal policy and private credit market conditions. Upside risks include fiscal stimulus, deregulation and tax reform. On the downside, protectionist trade policy was a leading cause for concern, as were uncertainty over fiscal and other policies, such as restrictive immigration.

Impact of Presidential Election  
While 94 percent of respondents agreed that the election of Donald Trump increased fiscal policy uncertainty, nearly two-thirds of respondents estimated an upward impact of up to 25 bps, 19 percent estimated an upward impact of greater than 25 bps and 13 percent estimated a downward impact of up to 25 bps.  

Respondents noted likely policies to be enacted include corporate and personal tax policies, followed by infrastructure spending and restrictions on immigration. Respondents also considered the repeal of the Affordable Care Act, regulatory reform, repatriation, tariffs, and energy policy changes to be likely.

Personal tax policy, corporate tax policy and infrastructure policy would be expected to positively impact GDP growth, while trade policies and immigration policy were expected to negatively impact GDP growth.

More than half of respondents (60 percent) expected the improved financial regulatory policy would raise GDP growth by up to 50 bps in 2017, if enacted, while a third of respondents expected no impact and the balance expected a negative impact of up to 50 bps.

One respondent noted, "Regulation costs over $1 trillion a year. Eliminating and simplifying some of it would be the equivalent of a massive tax cut."

Oil Prices:  
Panelists placed a 12.5 percent chance on West Texas Intermediate (WTI) crude oil prices dropping to below $40 by end of the first half of 2017, a 42 percent chance of prices between $41 and $50 a barrel, a 37 percent chance of prices between $51 and $60, and the balance for prices rising to $61 or higher. Respondents estimated that the most likely scenario – oil prices remaining in the $41 and $50 per barrel range – would have no impact on economic growth, similar to the mid-year 2016 forecast. 

Respondents estimated that WTI would settle at an equilibrium price of $65.00 per barrel three years from now, assuming continued moderate global growth.

The full report is available at the following link:  www.sifma.org/eoutlook20162h/

Listen to the Podcast:
SIFMA Podcast: SIFMA’s Economic Advisory Roundtable Forecasts 2.2% GDP in 2017 

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SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $20 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

 


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