Commerce Secretary Projects Strong Q1 Growth and Warns EU Against Trade Retaliation
Davos, Tuesday, 20 January 2026.
Defying conservative forecasts, Secretary Lutnick projects Q1 growth exceeding 5% and warns European allies that retaliating against Greenland-related tariffs risks spiraling into a “tit-for-tat” trade war.
A Bullish Outlook Amidst Monetary Constraints
Speaking at the World Economic Forum in Davos on Tuesday, January 20, 2026, Commerce Secretary Howard Lutnick delivered a strikingly optimistic forecast for the U.S. economy. Lutnick projected that U.S. GDP growth would exceed 5% in the first quarter of 2026, a figure he argues could be even higher if not for the current monetary policy stance [1][2]. Describing the current interest rates as restrictively high, Lutnick posited that the American economy is effectively restraining its own potential. “Our rates should be much lower so that our economy can finally flourish,” he stated, suggesting that a more accommodating rate environment could propel growth to hit 6% [1][2]. This perspective places the Commerce Secretary at the more aggressive end of the administration’s economic forecasting spectrum.
Diverging Economic Forecasts
Lutnick’s projection of over 5% growth for the $30 trillion U.S. economy notably outpaces other authoritative estimates released this week [2]. While U.S. Treasury Secretary Scott Bessent, also present in Davos, anticipates a strong but slightly more moderate real GDP growth between 4% and 5% for the year, international bodies remain far more conservative [1][2]. On Monday, the International Monetary Fund (IMF) released a forecast pegging U.S. real GDP growth at 2.4% for 2026 [1]. Although this figure represents an upward revision of 0.3 percentage points from their October estimates—driven largely by investment in artificial intelligence—it remains less than half of the rate Lutnick envisions for the current quarter [2]. Lutnick emphasized that his figures reflect his personal assessment, distinct from the official data compiled by the Bureau of Economic Analysis under his department [2].
Trade Tensions and Market Jitters
Beyond domestic growth, the Secretary addressed the escalating geopolitical friction surrounding the administration’s interest in Greenland. With President Trump threatening tariffs on nations resisting U.S. overtures toward the territory, Lutnick issued a stark warning to the European Union against retaliation [2]. He cautioned that if Brussels were to respond with countermeasures, it would trigger a return to a “tit-for-tat” tariff escalation reminiscent of previous trade disputes [2]. Despite the aggressive rhetoric, Lutnick downplayed the long-term risks, characterizing the potential conflict as a “kerfuffle” that would eventually conclude in a “reasonable manner,” citing past negotiations that led to trade agreements [1][2].