The US economy grew at a solid 3.2% annual pace from October to December, boosted by consumer spending. The expansion of the country's GDP (the economy's total output of goods and services) fell from 4.9% growth from July to September. Still, US growth has surpassed 2% for six straight quarters, defying fears that high interest rates would push the world's largest economy into recession. But the scenario going forward seems more challenging: even worse when the economy is one of the big issues in deciding who will be the next president of the country.

Claudio Loser is an Argentine economist who served as Director of the Western Hemisphere Department and has been president of Centennial Latin America for 17 years, a global strategic and policy advisory firm for governments, financial institutions and international corporations based in Washington. In an exclusive dialogue with LPO, he spoke about how Biden's economy is doing and whether it is possible to avoid a recession that has been predicted but has not yet manifested itself.

Los consumidores empiezan a ver una recesión en el horizonte y se acerca el mayor temor de la Casa Blanca 

LPOLenin Nolly

The economy slows down, but it doesn't fall. In fact, several indicators show a lot of resilience. How long will this last?

The US economy continues to perform very well. Its growth was much stronger than expected during 2023, partly because there was a significant reduction throughout the year, and partly because people had significant savings accumulated during the pandemic and they spent them, and that led to significantly more spending. Of course, the kind of expenditure that was made in 2023 was different from that of the time of the pandemic. Not as many electronic products were purchased to be inside the house and more was spent on services, that is, on tourism, trips in general, eating out, on that kind of things, which made the economy work very well. By the way, not everything was perfect. At this time, the situation had great limitations in the labor market, in part it has to do with the fact that there are limits to the entrance of immigration, not just illegal, and that made the labor market very concentrated, let's say, with great tension and significant wage increases.

Recession is not going to happen, it is considered a miracle within the world's economies, given that China has problems, Europe has not grown that much either, and the United States is the country with the best performance.

This also explains why inflation does not decline as much as expected.

Evidently, that is one of the reasons why inflation has been somewhat higher than was thought. Regarding this, evidently inflation dropped to 3% and was expected to drop to 2.5% annually, and because of this situation in the labor market and some degree of tension in the oil markets, etc., it caused prices to rise a little more, but we are talking about a range of between 3 and 3.5%. This has an important impact because the Federal Reserve, which was planning to lower interest rates soon, will probably wait until the second half of the year to reduce these rates and therefore a complex situation remains in the economic area, especially with regard to mortgage loans, which reached 8% annually and are now a little lower, which has also increase tension in the real estate market.

LPO/Lenin Nolly

Will the economy resist the much-announced recession this year?

I would say that the expectation is that the economy will grow less in 2024 than in 2023, when it recovered from previous years. I would say that the most important issue from an economic point of view is not going to be either employment or recession. A recession is not expected in the United States. Of course, this can change, but there will be concerns in terms of inflation and, on the other hand, the fact that there is a lot of concern in terms of the income of wage earners compared to the perception of the income of the richest people, and that can have an impact. Again, it is an economy that is working, an economy that is seeing a reduction in inflation, although it has remained at higher levels than expected. Recession is not going to happen, it is considered a miracle within the world's economies, given that China has problems, Europe has not grown that much either, and the United States is the country with the best performance.

For Biden, the economy is an adverse element. We have to see what happens in the next six or seven months. The situation is most likely to stabilize, although not with strong growth. And, in that sense, I could say that the economic element would go from being negative to neutral.

Does the fact that there is not going to be a recession play in favor of the Biden government, or the voter's perception is that his economic management is not good?

At this moment, the American economy is in a transition process from the point of view of people's expectations. In general, Americans have gone through a good year. But it still had important elements of inflation at the beginning of the year, and there are elements of tension or pressure such as the lack of labor and problems regarding certain sectors that, such as the technological one, have not grown as much as we thought. In that sense, it is very possible that at this moment the economy, or the perception of the economy, with prices that have not yet completely stabilized is negative.

So, I would say that for Biden it is an adverse element. We have to see what happens in the next six or seven months. Unless there is some extremely dramatic situation, it is most likely to stabilize, although not with strong growth. And in that sense, I could say that the economic element would go from being negative to neutral. I don't think that in people's perception the economy is seen as favorable with Biden, even though many of the mistakes that Trump made were reflected during Biden's first year - or two years -, and therefore, they are taking its toll on him. In short, I think we are in a situation where the economy is slightly against Biden and could turn neutral in the overall picture.

Translator: Bibiana Ruiz.