Key takeaways from this publication:
- We expect GDP growth to moderate to 2.4% in 2022 from its rapid pace in 2021 (5.7%). However, a downside scenario where oil prices remain elevated at $125 per barrel (WTI) on average in 2022 would bring our forecast down to 1.8%.
- A tech-led business capital expenditure (capex) recovery is underway and separates the overall performance of business spending in this cycle compared with previous cycles.
- Conditions for further strength in capex remain in place: company bank balances remain elevated, credit conditions remain supportive, and we think it is likely that the Federal Reserve (Fed) rate hike cycle will be less aggressive than currently projected in Fed’s March 2022 Summery of Economic Projections (see our slide deck on the Federal Reserve here, and recent Wilmington Wire here).
- The bipartisan infrastructure bill should be supportive of capex for several years.
- We expect solid capex to bolster GDP growth and productivity in the year ahead, though the pace of capex growth may slow after a rapid run-up in 2021.
- Risks to the capex outlook include a larger than expected turn down in growth and business sentiment due to the Russia-Ukraine war, the potential for a more-aggressive-than-expected rate hike cycle, and uncertainty around structural shifts in consumer behavior in the post-pandemic economy
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