Assuming no more substantial drops in energy prices, US nominal GDP should start to accelerate in the second half of 2016, according to AllianceBernstein (AB).
In a recent article titled Has nominal GDP growth hit bottom?, AllianceBernstein US economist and director for global economic research, Joseph Carson, said the beneficial effects of lower oil prices should see nominal US GDP growth accelerate for the remainder of 2016.
The price of oil peaked at about US$105 per barrel in mid-2014 and then fell to around US$30 by early 2016, Mr Carson said.
While the dramatic drop in energy prices has dragged nominal GDP growth down, economic expansion has now "bottomed" and is likely to accelerate for the remainder of the year, he said.
History has shown that sharp and large declines in energy prices tend to result in a "substantial deceleration in nominal GDP growth", Mr Carson said.
"In the current cycle, the deceleration in nominal GDP has been about 150 basis points, with nominal GDP decelerating from 4.5 per cent in mid-2014 to around 3 per cent in early 2016," he said
But the fall in nominal US GDP has not been as severe as the declines in 1986 – largely because the non-energy sector has maintained a steady course throughout the past year, Mr Carson said.
"With energy investment at a 60-year low, it’s not unreasonable to conclude that most of the negative effects of the oil-price collapse have been absorbed," he said.
"However, the cash flow benefits to households, transportation companies – and even a wide swath of industrial companies – from the lower energy prices have yet to be fully realised.
"At the moment, the general tendency of the forecasting crowd is to expect more of the same. Yet, based on what we observe as the underlying trend in the economy, it wouldn’t surprise us if the pace of nominal GDP accelerates over the rest of 2016," Mr Carson said.
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