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U.S. Treasury sees economy still expanding in 2022 despite Q1 GDP drop

U.S. Treasury sees economy still expanding in 2022 despite Q1 GDP drop

WASHINGTON (Reuters) – The U.S. economy is expected to continue its expansion this year despite a surprise contraction in the first quarter, the U.S. Treasury’s chief economist said on Monday, adding that inflation may be peaking.

Benjamin Harris, assistant secretary for economic policy, said in a statement to the Treasury Borrowing Advisory Committee that there may be downward revisions to private GDP forecasts for 2.3% growth on a fourth-quarter comparison after the 1.4% first quarter decline in real GDP.

“Although this estimate may be revised down — and downside risks remain to the outlook — the U.S. economy is expected to continue its expansion this year,” Harris said. “Waning fiscal and monetary stimulus along with recovering labor supply should help balance labor markets and relieve some inflationary pressures.”

The statement was issued as part of the Treasury’s May quarterly refunding process. The Treasury said on Monday that it expects to pay down $26 billion of debt in the second quarter, compared to a January estimate of $66 billion in net borrowing, primarily due to an increase in receipts.

Harris said that while lower exports, higher imports and low inventory investment caused the decline, private consumption and fixed investment remained strong.

He said that supply-demand mismatches have driven headline and core inflation higher so far in 2022, with further increases in headline inflation driven by higher energy and grain prices due to Russia’s invasion of Ukraine.

“Still, core inflation may have peaked in spring 2022 and started to ebb, given a further waning of the pandemic, government efforts to contain energy prices, and an easing of supply bottlenecks in some markets,” Harris said.

Source: Investing.com

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