ISTANBUL

Fitch Ratings said Tuesday it expects US gross domestic product (GDP) growth to slow later this year, due to falling household income and declining consumer spending.

The GDP growth rose 1.6% at an annualized rate in the first quarter of 2024, which is a notable slowdown from the fourth quarter annualized pace of 3.3%, it said in a statement.

The slowdown was largely driven by weak net exports, lower inventory build-up and weaker government spending, according to the rating agency.

"We expect growth to slow to a significantly below-trend rate later this year, reflecting a fading fiscal impulse, falling household income growth, a weakening contribution from net trade and lagged effects from last year’s monetary tightening, as real interest rates rise," said the statement.

"The strength of the U.S. consumer has underpinned the resilience of the U.S. economy," it added.

Although the agency revised its annual real consumer spending forecast for 2024 upward to 1.9% from 1.3%, it is still a deceleration from the 2023 growth of 2.2%, it noted.

"Full-time equivalent employment has already slowed – partly reflecting a deceleration in average weekly hours – and we assume that wage growth will slow as the year progresses," said the statement.

"The consumers’ ongoing willingness and ability to draw down buffers of excess savings, although fading, continues to support spending, particularly by high income consumers," it added.

Fitch noted that the household sector's high liquid assets and their savings could continue to support consumer spending later this year, but warned that this is expected to fade as interest rates stay elevated longer.