US economy slows down sharply as impact of Trump’s tax cuts fades

US economic growth slowed sharply in the last three months of 2018 as the effects of Donald Trump’s massive corporate tax cuts began to fade.

Growth was revised down to just 2.2 per cent from 2.6 per cent, the government said on Thursday. 

The adjustment came after consumer spending, business investment, government spending and housebuilding all came in lower than had previously been predicted.

Fears are also growing that the American economy is faring even worse in the first quarter of this year as a trade dispute with China and a global slowdown take their toll.

The news will cause a headache for Mr Trump who has presented himself as a business-friendly president and has repeatedly boasted about his administration’s positive impact on the economy.

Now analysts believe growth may have slowed down to an annual rate of just 1.5 per cent, little more than half the pace of 2018.

If that is reflected in official data the government will find it difficult to fund its spending proposals.

The president’s new budget forecasts that the economy will grow by 3 per cent a year or better for much of the next decade – well in excess of most independent predictions.

US growth surged in the middle of 2018 after Mr Trump slashed taxes on corporate profits and income for high earners.

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The tax cuts handed a $1.5 trillion boost mostly to US companies that helped to propel growth to 4.2 per cent in the second quarter of last year. 

But the positive effect appears to have been short-lived. GDP growth fell to 3.4 percent in the third quarter and 2.2 per cent in the final quarter.

During his State of the Union address last month, Mr Trump received a standing ovation from Republicans when he said: “The US economy is growing almost twice as fast today as when I took office and we are considered far and away the hottest economy anywhere in the world. Not even close.”

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