US economy grows slower than expected in fourth quarter of 2016

 
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Donald Trump has an ambitious growth target for the US economy (Source: Getty)

The US economy grew by less than expected in the last full quarter of the presidency of Barack Obama, as the country enters a new era of fiscal and monetary policy.

Real GDP grew at an annual rate of 1.9 per cent in the fourth quarter of 2016, according to the US Bureau of Economic Analysis.

Growth in the world's largest economy over the whole of 2016 was 1.6 per cent, a fall from 2.6 per cent the year before.

Exports fell in the last quarter, dragging on growth, according to the preliminary estimates, while the rate of growth of personal consumption also slowed.

The dollar index against a broad basket of currencies fell slightly to pare its gains to around 0.2 per cent. It had been up by around 0.3 per cent ahead of the announcement.

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Growth fell from the third quarter of last year, when it surged to 3.5 per cent.

The figures come ahead of a meeting of the Federal Reserve's rate-setting body, the Federal Open Market Committee (FOMC), next week. No change is expected to policies, but in the longer term higher growth and inflation will lead to the FOMC raising interest rates faster.

US President Donald Trump has promised policies that will boost growth to over four per cent on an annual basis, which most economists think will be a struggle. Growth did not rise above three per cent during the whole of the Obama Presidency, as the economy slowly recovered from the global financial crisis.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said: "Today’s reading shows that global uncertainty, in the shape of a heightened political climate both in the US and in Europe, took its toll on the final quarter of 2016 and put a pinch on US growth."

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“Growth in jobs and the economy are the primary concerns of the new US administration and the levels of growth which have been talked about are very optimistic," she added.

The US economy is nearing full employment, the level at which labour resources are deployed at their maximum efficiency. Spurring growth in these conditions will be difficult without a significant rise in inflation.

Dennis de Jong, managing director at UFX.com, said: “Solid but not spectacular fourth quarter growth should please Janet Yellen and her Fed colleagues, but what new President Donald Trump will make of the figures released today is anyone’s guess.

“Consumer spending is vital to the world’s largest economy and although there were strong signs that confidence jumped following Trump’s election in November, many observers are taking a wait and see approach.

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