US: Low growth in 2022 to lead to a depreciation of the dollar – Natixis

Consensus forecasts probably overestimate US growth in 2022. Economists at Natixis have some doubts about growth in 2022, which could be lower than expected for several reasons. The consequences of weak US growth in 2022 for US monetary policy, long-term interest rates, equities and the dollar would be major.

Causes of potential weakness in 2022 US growth

“The fiscal deficit in 2020 and 2021 has been massive in the US due to transfer payments to households that have (abnormally) increased their income. From 2022, the fiscal deficit is likely to be much lower, even if we take into account the public infrastructure investment plan and the social welfare plan. There will therefore be a sharp fiscal contraction, with a massive negative effect on demand, which can however be cushioned through: Improved foreign trade; Consumption of part of the accumulated savings.”

“Mainly due to the rise in commodity prices, inflation will become very high in 2021 in the US, which will give rise to a sharp decline in the purchasing power of wages, which will then weaken consumption.”

“The very significant hiring difficulties of US companies, skills mismatch between labour force and business needs, with many Americans appearing to have given up looking for jobs, will weaken the return to normal of the employment rate.”

“If US growth is markedly lower than expected in 2022, then we should expect: Eurozone stock market indices to catch-up with US indices; A continued expansionary monetary policy and low long-term interest rates for longer and a depreciation of the dollar.”