U.S. Economic Outlook Less Robust than the Headline Forecasts Suggest

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The U.S. economy is projected to grow by 2.2% in 2024, a significant upward revision from earlier forecasts, according to a recent report by Swiss Re. However, the headline figure masks underlying weaknesses that analysts warn could challenge sustained economic momentum.

“The uplift stems from a statistical phenomenon known as the ‘carry-over effect,’” explains Hendre Garbers, Senior Economist at Swiss Re. “While the outsized 3.3% annualised growth in the last quarter of 2023 boosts the 2024 headline forecast, it doesn’t change our expectation of a sequential slowdown throughout the year.”

The carry-over effect, which mechanically inflates annual growth figures based on strong performance in the prior year’s final quarter, accounts for 1.3 percentage points of the projected 2.2% GDP growth in 2024. By comparison, carry-over effects in 2023 added only 0.7 percentage points, highlighting the statistical anomaly this year.

Underlying Weaknesses

Despite the upbeat annual forecast, Swiss Re maintains a cautious outlook, projecting four quarters of below-trend growth in 2024. Quarterly growth is expected to decelerate steadily, falling below the long-term trend of 1.9% before rebounding modestly to 1.4% in Q4.

“It may feel like a slowdown for many businesses and households,” Garbers notes. “High interest rates and persistent inflation are expected to weigh on consumption and corporate investment.” Rising corporate insolvencies and declining trade flows are also anticipated to stress key economic sectors, including insurance and manufacturing.

Inflation Stays Elevated

Inflationary pressures remain a key concern. Swiss Re’s 2024 inflation forecast is pegged at 3.5%, slightly above the Federal Reserve’s 2% target. Sticky core inflation and residual supply chain challenges are expected to limit the pace of disinflation, even as energy prices stabilise.

“Persistent economic momentum contributes to our expectation of only gradual policy easing by the Federal Reserve this year,” says Mahir Rasheed, another Senior Economist at Swiss Re. “Insurers, however, may benefit from elevated interest rates supporting investment returns.”

Sectoral Implications

The report highlights specific challenges for the insurance sector, where rising insolvencies and weaker consumption could stress credit and surety lines. “While headline growth appears robust, the economic slowdown could adversely impact lines of business sensitive to economic cycles,” Rasheed warns.

Global Context

Notably, the carry-over phenomenon is less pronounced in other regions. The Euro area, for instance, is forecasted to grow by just 0.3% in 2024, with minimal carry-over effects reflecting stagnation in 2023. “The divergence underscores the importance of digging beneath headline figures to understand true economic dynamics,” Garbers emphasises.

Looking Ahead to 2025

Swiss Re also upgraded its 2025 U.S. GDP forecast, projecting growth at 1.9%. While slightly lower than the revised 2024 figure, this forecast reflects a more stable quarterly growth pattern. The weakest quarter of growth in 2025 is expected to reach 2.1%, signalling a gradual improvement from the below-trend growth anticipated for much of 2024.

The Bottom Line

While the U.S. economic outlook appears solid on paper, analysts caution against over-reliance on headline forecasts. As Garbers concludes, “The real story lies in the details. Beneath the surface, the U.S. economy is navigating significant headwinds that warrant a more nuanced perspective.”