New Delhi,NOV 22
The US economy is projected to experience slower growth and persistently high inflation in the coming years, according to a report by Morgan Stanley.The firm has revised its GDP growth estimates downward, citing factors like a cooling labor market, tighter immigration policies, and rising tariffs as major contributors to the slowdown.The report forecasts GDP growth of 2.4 per cent in 2024 (4Q/4Q), which is expected to drop to 1.9 per cent in 2025 and further decline to 1.3 per cent by 2026.The report attributed this deceleration to weakening consumer spending and reduced business investment.”Tighter immigration policy and tariffs weigh heavily on the economy, slowing GDP growth in 2025 and more sharply in 2026,” the report stated.The report highlighted that the consumer spending, a key driver of the US economy, is anticipated to slow significantly over the next few years. Growth in consumer spending is expected to decline from 2.6 per cent in 2024 to 2.0 per cent in 2025, and further to just 1.3 per cent in 2026.It said, “As labor income growth cools, consumption decelerates. Goods consumption declines less than services as lower interest rates support durables consumption. In 2026, we expect sharper deceleration as tariffs dampen both economic activity and labor markets.”Higher tariffs are predicted to not only slow economic activity but also contribute to inflationary pressures by driving up prices. This, combined with reduced labor income, is expected to weigh heavily on consumption.The labor market outlook also presents challenges. Payroll growth is projected to average just over 100,000 jobs per month in 2025, while unemployment is forecast to end 2024 at 4.3 per cent, drop slightly to 4.1 per cent in 2025, and rise again to 4.5 per cent in 2026.
The report highlights that tighter immigration policies will constrain labor supply, affecting both income and employment levels. “Lower immigration means significantly lower payroll prints in 2025 and 2026,” it stated.
Additionally, fiscal policy is expected to provide minimal relief in the near term, with most provisions of the Tax Cuts and Jobs Act set to expire by the end of 2025. While the reinstatement of SALT deductions and other minor provisions for tariff-affected firms are anticipated in 2026, their impact is expected to be limited.
