US growth recorded an unexpected decline in the first quarter of the year, with the gross domestic product contracting by 1.4%, but the economy “remains strong”, as Joe Biden said, citing “technical” factors to explain this decline.
The rate of decline in the gross domestic product of the world’s largest economy is calculated on an annual basis. But compared to just the last quarter, the decline was 0.4%, according to Commerce Department data. This is while analysts expected a growth of 1.1%.
“The United States is facing the challenges of COVID-19 around the world, the unjustified invasion of Ukraine by Russian President Vladimir Putin, and global inflation,” the US president said in a statement.
Then he stressed during a press conference that he was “not concerned” regarding the risks of a recession, and highlighted the consumer spending of households and companies and the drop in the unemployment rate to the lowest level in history.
However, the first quarter represents a clear reversal of the trend compared to the annual growth rate of 6.9% recorded in the fourth quarter of 2021. This underperformance will greatly complicate the task of the US Central Bank, which was aggressively planning to raise interest rates, to curb inflation.
This quarter is the weakest since the spring of 2020, when the pandemic plunged the US economy into a deep recession.
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A failure in performance greatly complicates the task of the “reserve” to raise interest rates
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Between January and March, the world’s largest economy was affected by a wave of mutant omicron and persistent supply chain problems.
A few economists recently warned of the possibility of a short-term recession, pointing to a range of factors affecting the economy starting with inflation at a pace not seen since the early 1980s.
In the first quarter, consumer prices rose 6.3% year-on-year, according to the US central bank’s personal consumption expenditures inflation index published with gross domestic product Thursday.
However, it takes two consecutive quarters of GDP contraction for an economy to be considered a recession; So we will have to wait until the end of the second quarter to find out the answer.
In addition to inflation, companies face labor shortages due to mass retirements and millions quitting each month to get a better-paying job.
“strong at the moment”
At the same time, the Commerce Department reports a decrease in government aid, a decrease in exports (-5.9%) and public spending of the federal state (-5.9%), while imports increased by 17.7%.
The Russian-Ukrainian war, which began on February 24, has exacerbated problems in global supply chains and inflationary pressures.
However, most economists believe that the US economy is still strong thanks to strong consumption, which is the historical engine of US growth.
These expenses increased in the first quarter by 2.7%, compared to 2.5% in the fourth quarter of 2021.
“Weak on the surface but strong in substance,” Gregory Dacoe, chief economist at EY Parthenon, wrote on Twitter, taking care to add in parentheses: “For the time being.”
Lydia Bosor, an economist at Oxford Economics, commented, “The first contraction in GDP since the end of the recession is sure to fuel fears of a slowing economy, but the report is not as worrisome as it appears if carefully examined.”
But the outlook remains highly uncertain, with the war in Ukraine slowing growth in most countries of the world, and China’s policy continuing; The lack of tolerance for COVID-19 is exacerbating supply problems.
Attention now turns to the Central Bank, which meets on Tuesday and Wednesday. Chairman Jerome Powell said last week that the bank was considering raising key interest rates faster than expected.
“The positive trend in consumer spending and business investment” should encourage the Federal Reserve to move forward, said Rubella Farooqi, an economist at High Frequency Farooqui.
Joe Biden once more urged Congress to vote on his investment plans.
(AFP)
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