US, WASHINGTON (ORDO NEWS) — The US economy in the first quarter shrank 4.8% year on year. This is the first drop in six years and the largest since the 2008 crisis.
US GDP in the first quarter of the year, according to preliminary data, decreased by 4.8% compared with the same period last year, according to a report of US economic analysis bureau. This is the first quarterly drop in the world’s largest economy since 2014, which has completed a record long growth period, Bloomberg notes. It is also the biggest reduction since 2008, when the financial crisis erupted.
The decline in real GDP was due, among other things, to a decrease in consumer spending (by 7.6%), exports (by 8.7%) and investment, the Bureau of Economic Analysis noted. Imports decreased by 15.3%. The negative effects partially offset the investment in fixed assets, as well as the costs of the federal government, states and authorities at the local level.
In part, the economic slowdown is due to the authorities’ reaction to the spread of coronavirus: in March, the government introduced a regime of self-isolation, the report said. This led to a rapid change in the structure of demand, because consumers refused expenses, or limited or redistributed them.
The full economic effect of the pandemic cannot be calculated in the framework of the GDP estimate in the first quarter, because they cannot be separated from the general data, the bureau noted.
The contraction of the US economy may signal the beginning of a recession, which could become the most serious in at least 80 years, Bloomberg writes. In the second quarter, there is likely to be an even more significant drop, because most of the restrictive measures entered into force in mid-March, the agency warned, citing analysts.
Bloomberg Economics predicted a collapse of 37% in annual terms, while UniCredit Bank – 65%, said Bloomberg. Already in the first quarter, there was the largest decline in consumer spending since 1980 and the fastest decline in investment in almost 11 years, he added.
“It’s pretty unbelievable if you think that the economy has been growing at a fairly normal pace for over 80% of the first quarter,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, on Bloomberg Radio.
Despite significant government spending and an almost zero key rate, large and small businesses run the risk of going bankrupt, and consumers, even after lifting restrictions, may be wary of going to restaurants and shops because of fears of getting sick, big debts or job uncertainties, Bloomberg concluded.
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