The U.S. Commerce Department announced on Thursday (28th) that GDP for the first quarter fell unexpectedly by 1.4%, even lower than the original sluggish 1% forecast and much lower than the 6.9% in the previous quarter, the first contraction since 2020.
In the first three months of 2022, a number of factors combined to influence economic growth. Although the market had expected a sharp slowdown in GDP, the negative growth still surprised most economists.
The rising Omicron outbreak hampered economic activity in January, while inflation soaring to levels not seen since the early 1980s and Russia’s invasion of Ukraine brought the economy to a standstill.
While recession expectations on Wall Street remain low, the U.S. Federal Reserve is gearing up to accelerate rate hikes that might lead to a further slowdown in the economy.
In the just-concluded 2021, the annual growth rate of US GDP reached 5.7%, the best result since 1984.
Personal consumption, the largest component of the economy, rose 2.7% in the first quarter, compared with 2.5% at the end of 2021, Commerce Department data showed. Spending on services contributed 1.86 percentage points to GDP, while spending on goods stagnated, reflecting changing consumer behavior.
The data came following some economists said the first-quarter data largely reflected a slowdown and a widening trade deficit rather than weakening consumption and business demand.
The U.S. Commerce Department announced on Wednesday (27th) that the trade deficit widened by nearly 18% in March to $125.3 billion. Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, pointed out that net exports in the first quarter might drag down economic growth by as much as 4 percentage points.
Because the U.S. economy is much stronger than the rest of the world, net exports are likely to continue to weigh on growth for the rest of the year, said Sarah House, a senior economist at Wells Fargo.
Against the backdrop of faster rate hikes, Goldman sees a roughly 35% chance of a recession a year from now. Deutsche Bank is pessimistic, arguing that in late 2023 and early 2024 there might be a “severe recession” in the economy.
