Ian Shepherdson, chief economist at Pantheon macroeconomics, looks ahead to 2020 in a new report, noting that economic growth since mid-2016 has been stronger than the rate implied by rising corporate bond yields, creating what he calls a growth wedge. Fiscal stimulus from tax cuts and spending increases has played a significant part in that, boosting growth “substantially, but temporarily,” Shepherdson says. And the deficit-fueled effects are set to continue through 2019, he adds. But:
“By fiscal 2020, however, things look different. Absent further spending increases—which we are not ruling out—the CBO reckons the budget deficit will be broadly unchanged, so the fiscal impulse will drop to zero, more or less. At that point, we have to expect the growth wedge to narrow substantially, and potentially quite quickly. This is why our forecast has GDP stalling—that is, zero growth quarter-on-quarter—in the first half of 2020. Gravity can't be defied forever.”
