Big cut expected in US Q4 GDP forecast

The US government will cut its estimate of fourth quarter growth because exports and restocking by the world’s biggest economy were less robust than previously thought.

A Reuters poll of economists shows the performance of the US economy on trade, inventories and consumer spending has been sluggish at the turn of the year, meaning the familiar path of no surprises in economic expansion.

This has now raised speculations that the country’s GDP growth will be lowered to an annual rate of 2.5 percent. That would be down sharply from the 3.2 percent pace reported last month, and the 4.1 percent recorded for the third quarter.

“The revision to the GDP number will better reflect the underlying economic trend because the increases in inventories and exports that massively lifted growth in the second half of the year were simply not sustainable,” said Harm Bandholz, chief US economist at UniCredit Research in New York.

The Commerce Department is set to release its fresh estimate of fourth-quarter GDP later on Friday.

The loss of momentum now appears to have already spilled over into the first quarter. This is because an unusually cold winter has been dragging down retail sales, home building and sales, hiring and industrial production.

Inventories, previously reported to have risen by $127.2 billion in the fourth quarter, are likely to be revised down too.

On Thursday, US Fed Chair Janet Yellen told lawmakers that severe weather had played a role in the weakening of the data.

She said, however, that it would take a “significant change” to the economy’s prospects for the Fed to put plans to wind down its bond buying on hold.