Deutsche Bank Calls for Lower U.S. Growth in 2016, 2017, and 2018

american-flag-1314998-639x479Deutsche Bank AG Chief U.S. Economist Joseph LaVorgna turned bearish on the U.S. economy last year, and his outlook hasn’t improved since then — in fact, he’s gotten even more pessimistic (and accurate).

LaVorgna used to be very bullish on domestic economic growth, but he changed his tune in 2015 when he came to a stark realization. From Reuters:

“What happened was that we got the GDP revisions and it turned out that the economy was even weaker than I thought so you go back and look at the data and you say ‘wow, the best year for GDP growth in this cycle was 2010 at 2.5 percent real growth,’” he said. “We haven’t had 3 percent growth since 2005, so any chance of us, in my mind, of getting growth to 3 percent or better wasn’t going to happen.”

This marked a turning point for the analyst, and his bearish transformation has led to much more accurate calls.

From 2013 through the second quarter of 2015, LaVorgna’s quarterly GDP estimates exceeded the consensus estimate for the vast majority of observations. But since the annual revisions were published in 2015, he’s had a below-consensus call for every initial quarterly GDP print.

Consensus figures have been off by a cumulative 1.7 percentage points over this span, while LaVorgna has missed by just half a percentage point.

LaVorgna remains bearish on U.S. growth, issuing weak forecasts below Wall Street consensus for 2016, 2017, and 2018. Although he’s not expecting a full-on economic recession, he certainly doesn’t discount the possibility.

While the economist deems U.S. recession risks to be not insignificant at this juncture, he also sees a number of fading headwinds related to oil, the dollar, and the upcoming presidential election that have the potential to buoy growth — just not by too much.

“We’ll grow, I just don’t think we’ll grow much above 2 percent unless something changes in the global economy or the U.S. fiscal side,” he concluded.

Investors haven’t seemed too concerned with tepid growth at home, however. The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) rose $0.53 (+0.29%) to $185.69 per share in premarket trading Thursday. The DIA, which is the largest ETF that tracks the DJIA, has gained 6.4% since the start of 2016.


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