For the umpteenth year in a row, mainstream economists and analysts are once again planting the seeds of hope for a return to stronger GDP growth. The White House has hoped for it for the last 8-years, and now President-elect Trump is all but promising a surge in economic growth.
Unfortunately, while promises are great, we must analyze the reality of attaining such a lofty resurgence.
Let’s start with the Congressional Budget Office (CBO) and their projections for the next decade. This is shown in the chart below.
There are several very noteworthy observations which need to be made:
- Real potential GDP has been sharply reduced from the long-term exponential growth trendline (green dashed line) to close the gap between real GDP and “hope.”
- With the economy heading into its 8th year of growth without a recession, the CBO is currently projecting another 10-years of “recession-free” growth. The reality of such happening is very slim.
- While the output gap has closed, by reducing expectations, real GDP continues to underperform significantly against both reduced expectations and long-term reality.