The Overheating Economy Could Crash in 2019, This Top Forecaster Says

Top Forecaster – Economy Could Crash in 2019

By Rex Nutting | March 12, 2018 6:44 a.m. ET

‘Forecaster of the month’ contest winner is optimistic about U.S. growth in the short run

The Overheating Economy Could Crash in 2019, This Top Forecaster Says

(Joerg Angelé, senior economist for Raiffeisen Bank International)

The U.S. economy is on a tear right now, but it can’t last for long, says Joerg Angelé, a senior economist for Austria’s Raiffeisen Bank International and the winner of the February Forecaster of the Month award from MarketWatch.

“I’m very optimistic about the U.S. economy in the medium term,” Angelé said in a phone interview from Vienna. But he fears the growth isn’t sustainable. “Everything is pointing to an overheating economy.”

The economy is already growing much faster than its long-term potential rate of around 1.5%, with the unemployment rate “way below” its long-term natural rate of around 5%, Angelé said. And that’s before the impact of tax cuts and budget stimulus hits.

The economy has “absolutely no need” for the additional stimulus.

He expects the economy to grow at almost 3% this year. The jobless rate should drop from 4.1% currently to about 3.5% next year.

By the middle of 2019 or so, the U.S. economy will probably be in a sharp slowdown, and perhaps even a recession, the economist said. He expects the economy to grow two to three percentage points faster than its long-run potential rate. With that much of a positive output gap, the economy would look a lot like the overheated economy of 2000, which fell into a recession the next year.

“It can’t go on forever,” he said. “The bubble will burst.”

He sees no reason why the Federal Reserve won’t be aggressive about raising interest rates to cool the economy. He expects four rate hikes this year and possibly two more in early 2019. Even so, inflation will creep up to an annual rate of 2.5% or so.

Read: Strong job growth isn’t enough to push Fed to get more aggressive on interest rate hikes

The rising tide of protectionism is a wild card in his forecast, he admits. He doesn’t expect it to have much impact on either economic growth or inflation as long as “everybody calms down, talks, and finds solutions.” But if a trade war erupts, “it will be disastrous for the U.S.”

“I’m hopeful it won’t escalate,” he said.

Angelé has worked for RBI since August 2009. The bank is one of Austria’s largest banks, and has branches and operations throughout Central and Eastern Europe. Angelé covers the United States and Germany for the bank’s economics department.

The Overheating Economy Could Crash in 2019, This Top Forecaster Says

In the February contest, Angelé narrowly beat out Ryan Sweet of Moody’s Analytics for the monthly forecasting award. Angelé’s forecasts on six of the 10 indicators we track were among the 10 most accurate out of 44 teams.

The other runners-up in the February contest were Jim O’Sullivan of High Frequency Economics, Christophe Barraud of Market Securities, and Paul Ashworth of Capital Economics.

The MarketWatch median consensus published in our Economic Calendar includes the predictions of the 15 forecasters who’ve earned the most points in our contest over the past 12 months, plus the forecast of the most recent winner of the monthly contest. When they differed, the MarketWatch consensus was more accurate than the closely followed Bloomberg consensus 65% of the time in 2017.

The top forecasters over the past year are Jim O’Sullivan of High Frequency Economics, Ryan Sweet of Moody’s Analytics, Spencer Staples of EconAlpha, Gus Faucher at PNC Financial, Christophe Barraud at Market Securities, Jan Hatzius’s team at Goldman Sachs, Michelle Girard’s team at NatWest Markets, Richard Moody at Regions Financial, Pat O’Hare of, Paul Ashworth at Capital Economics, Peter Morici of the University of Maryland (and a regular columnist for MarketWatch), Michael Feroli at JPMorgan Chase, Seth Carpenter’s team at UBS, Douglas Porter’s team at BMO Capital Markets, and Brian Wesbury and Bob Stein at First Trust.