We expect 2Q2018 GDP to be much stronger, supported by strong consumer spending which should grow around 3.7% due to tax cuts, and net exports that will help lift GDP growth by about 1% in 2Q2018. Hence, we have revised 2Q2018 GDP growth to 3.8% from previously 2.8%, higher than the 1Q2018 growth of 2.2%. If the economy grows at our projected growth rate, it would be the best since 3Q2014.

For 2018, we reiterate our 2.8% GDP growth, with room to touch 3.0%, boosted by household tax cuts. However, for a sustainable growth over the medium to longer term, the economy needs corporate tax cuts. Looking at 2019, we maintain our 2.3% GDP growth projection. Much will depend on whether the economy could get through trade war issues. A trade war blow-up would choke the economy.

On the interest rate outlook, we have now factored in a total of four rate hikes by the Fed in 2018 with the next rate hike in September and followed by December. For 2019, we are looking at two rates hikes with the policy rate normalising at 2.75%–3.00%.

• We expect 2Q2018 GDP to grow at a much stronger pace. Growth will be supported by stronger retails sales which reflects sturdy consumer spending. Retail sales in May was up 0.8%, while excluding autos, sales rose 0.9%.

• With a healthy retail sales figure, we project consumer spending in 2Q2018 to grow around 3.7% after a weak 1.0% growth in 1Q2018. Strong spending comes from tax cuts that boosted disposable income. That would also mean we can foresee the 2Q2018 saving rate to most likely revisit the lows for the cycle.

• Also, we feel net exports will help GDP growth. It should add about 1% in 2Q2018. But the corporate segment is not as robust as we would like to see. Business investment spending, a key performer over the past year, seems to appear flat in 2Q2018, marking its weakest performance.

• On the whole, we have revised upwards our 2Q2018 GDP growth to 3.8% from previously 2.8%. It is much higher than the 1Q2018 GDP growth of 2.2%. If the economy grows at our projected rate, it would be the best since the 3Q2014.

• For the full year of 2018, we reiterate our 2.8% GDP growth with room to touch 3.0%. Although we expect the household tax cuts to provide a strong boost to consumer spending, it could potentially fizzle out. For a sustainable growth over the medium to longer term, we believe there is a need for corporate tax cuts.

• For 2019, our GDP projection remains at 2.3%. Much will depend on whether the economy could get through the trade war issues. A trade war blow-up will most likely choke the economy.

• On the interest rate direction, we have now factored in a total of four rate hikes by the Fed in 2018 with the next rate hike in September and followed by December. For 2019, we are still looking at two rates hikes with the policy rate normalising at 2.75%–3.00%.

Source: AmInvest Research - 19 Jun 2018