The US economy shrank in the first quarter by its fastest rate since the 2008 financial crisis, ending the longest expansion on record as lockdowns aimed at curbing the coronavirus pandemic choked off economic activity.
Gross domestic product, or the value of all goods and services produced by the economy, shrank at an 4.8 per cent annualised rate in the first three months of the year, according to the preliminary estimate from the Bureau of Economic Analysis published on Wednesday. That marked the first quarterly contraction in six years and compared with economists’ forecasts for a 4 per cent decline in output.
American consumers who had been a driving force in the economy retrenched spending as state governments nationwide began to announce lockdowns last month in an effort to curb the spread of coronavirus and businesses laid off millions of workers. Retail sales fell 8.7 per cent in March, the most since records began in 1992
However, as lockdowns only began in earnest in mid-March, economists have cautioned the worst is yet to come for the US economy.
To cushion the blow to the US economy, Congress passed a $2.2tn stimulus package that expanded unemployment benefits, and earmarked $349bn to bailout small businesses that on Monday was expanded by an additional $310bn, after the initial pot ran out on April 16.
At the same time, the Federal Reserve unleashed measures — including slashing interest rates, asset purchases, expanded lending facilities and swap lines with foreign central banks — that outstripped its efforts during the 2008 financial crisis.
Those measures have helped fuel hopes of a summer rebound alongside a move by states, across the political divide, to reopen their economies. For US president Donald Trump a strong rebound in GDP and hiring are crucial to his re-election prospects.
Source: Economy - ft.com
