Question #1 for 2022: How much will the economy grow in 2022?

by Calculated Risk on 1/04/2022 12:58:00 PM

Earlier I posted some questions on my blog: Ten Economic Questions for 2022. Some of these questions concern real estate (inventory, house prices, housing credit, housing starts, new home sales), and I posted those in the newsletter (others like GDP and employment will be on my blog).

I’m adding some thoughts, and maybe some predictions for each question.

1) Economic growth: Economic growth was probably around 5.5% in 2021 as the economy rebounded from 2020. There will be a drag from fiscal policy in 2022, and monetary policy will be less accommodative. The FOMC is expecting growth of 3.6% to 4.5% Q4-over-Q4 in 2022. How much will the economy grow in 2022?

Here is a table of the annual change in real GDP since 2005. Prior to the pandemic, economic activity was mostly in the 2% range since 2010. Given current demographics, that is about what we’d expect: See: 2% is the new 4%., although demographics are improving somewhat (more prime age workers).

Note: This table includes both annual change and q4 over the previous q4 (two slightly different measures). For 2021, I used a 7.0% annual growth rate in Q4 2021 (this gives -2.2% Q4 over Q4 or -3.4% real annual growth).

Real GDP Growth
Year
Annual
GDP
Q4 / Q4
2005
3.5%
3.0%
2006
2.8%
2.6%
2007
2.0%
2.2%
2008
0.1%
-2.5%
2009
-2.6%
0.1%
2010
2.7%
2.8%
2011
1.5%
1.5%
2012
2.3%
1.6%
2013
1.8%
2.5%
2014
2.3%
2.6%
2015
2.7%
1.9%
2016
1.7%
2.0%
2017
2.3%
2.7%
2018
2.9%
2.3%
2019
2.3%
2.6%
2020
-3.4%
-2.3%
20211
5.7%
5.6%
1 2021 estimate based on 7.0% Q4 SAAR
annualized real growth rate

The FOMC is projecting real GDP growth of 3.6% to 4.5% in 2022 (Q4 over Q4). Goldman Sachs is forecasting 3.5% growth in 2022.

My sense is growth will slow in 2022 noticeably. Some sectors, like vehicle sales, will pick up since vehicle sales were supply constrained in 2021. Other sectors will continue to recover (like travel related) and service sectors. However, some goods sectors will likely decline, and real estate will likely be mostly flat in 2022. Also, fiscal and monetary supply will give less of a boost in 2022.