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Stronger Dollar To Subtract >2% From GDP: JPM

US OUTLOOK/OPINION

Part of JPMorgan's downgrade this week to their US growth projections starting in 2H 2022 is their expectation for tighter financial conditions to weigh on activity. One of their main reasons is the stronger US dollar - which as MNI has highlightedwill help subdue inflation but at the cost of growth.

  • JPMorgan's REER index is up 11% over the past year and 13% vs the 2019-20 average. Using the typical assumption that the price elasticity impact on imports and exports is around 1.0, and the share of imports and exports in GDP are 16% and 11%, respectively.
  • Given those figures, the rise in the dollar "should eventually subtract well over 2% from the level of GDP" (with higher imports and lower exports each acting as a drag).
  • "The lag between changes in exchange rates and real trade flows can be quite protracted, sometimes estimated to be several quarters. Even so, we expect to see the effect on conditions facing domestic manufacturers show up in 2H22."
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