Why Vanguard’s Chief Economist is Not So Bullish on the U.S Economy

Goldman Sachs sees a pickup in economic growth in 2020.

In fact, analysts see GDP growing to 2.3% early in the year, averaging 2.1% for the full year. All based on lower interest rates, tariffs, and inventory cycle recovery.

“We believe that tariffs on imports from China have likely peaked,” wrote the bank’s chief U.S. political economist, Alec Phillips, as quoted by Yahoo Finance.  “We expect that tariffs on imports from China will remain at current levels through 2020.”

Mobius Capital Partners’ Mark Mobius believes that, “Barring any major incident in the administration and assuming that Trump stays in the presidency I think the stock market will do very well and the economy will do well.”

However, not everyone is on board with arguments for upside.

Joe Davis, the global chief economist and head of investment strategy at Vanguard doesn’t buy into any of that hope, though.  

“In the year ahead, we don’t foresee a significant reversal of the [U.S.-China] trade tensions that have occurred so far. And with continued geopolitical uncertainty and unpredictable policy-making becoming the new normal, we expect that these influences will weigh negatively on demand in 2020 and on supply in the long run,” he says, as quoted by MarketWatch.  

Davis also believes U.S. growth will actually decelerate to about 1% in 2020, with China also expected to grow below trend.  Then again, this doesn’t come as a big surprise.  

On the heels of political uncertainties and sky-high valuations, he notes, “Our near-term outlook for global equity markets remains guarded, and the chance of a large drawdown for equities and other high-beta [more volatile] assets remains elevated and significantly higher than it would be in a normal market environment.”

Only time will tell.  Stay tuned for more on this developing story.