U.S. real GDP remains unchanged

The second estimate of U.S. real GDP growth for the fourth quarter of 2016 was unchanged at 1.9%(annualized). While GDP growth was unchanged, private domestic demand was revised up to 3.0% (from 2.8%), an acceleration from 2.4% in the third quarter. The downward revision to business investment was disappointing, but there was ample scope for optimism over the year ahead.

Going forward, we expect to see a decent follow-through of around 2% growth in the first quarter of 2017. As a result, economic slack will continue to diminish and the Fed will continue to push interest rates higher. While we expect the first interest rate hike to come in early summer, a hike in late spring is certainly not off the table if economic data surprises to the upside.

The big uncertainty for the outlook in 2017 is the future of fiscal policy. The new Congress and President has expressed tax reform and infrastructure spending as their priority. However, we have to wait a while longer to know the precise details of fiscal policy and what effect it might have on the economy.