2023-04-27 19:14:18
The high cost of loans caused corporate investment to decline
Declining corporate investment, due to the high cost of loans, slowed economic growth in the United States in the first three months of the year.
The Commerce Department reported that the economy grew 1.1 percent year-on-year, compared to 2.6 percent in the previous quarter, despite strong consumer spending.
Analysts are watching how the world’s largest economy will react to a combination of higher interest rates and higher prices.
The GDP report showed the economy grew in three consecutive quarters.
And the US economy had contracted in the first half of last year, because commercial transactions were returning to their pace following the Corona epidemic, and the high cost of loans led to a decline in domestic sales.
But a strong labor market has kept consumer spending, the primary driver of economic activity, in check, helping to defy recessionary expectations.
Spending recorded an annual rate of 3.7 percent in the January-March period.
President Joe Biden described the slowdown as a procedural necessity following the huge turnout that followed the exit from the pandemic.
He said in a statement following the publication of the report: “We learned today that the US economy remains strong, and is moving to the stage of stable growth.”
But many observers expect the United States to enter recession later this year.
“The data confirms the message that comes with other indicators that economic growth is slowing and has not yet collapsed,” says Andrew Hunter, an economist at Capital Economics.
“However, most of the fundamental indicators warn of recession. We expect further weakness soon,” he added.
The US Central Bank raised the interest rate to 4.75 percent, while it was close to zero in March, in an attempt to relieve the pressure leading to higher prices.
Since then, inflation has fallen to 5% in March, but it is still higher than the central bank’s target of 2%.
While sectors such as housing, finance and technology, in which the cost of borrowing is low, recorded cautious growth.
Recent weeks have seen job cuts announced at several major companies, including Deloitte, 3M and tech giant Meta.
Analysts expect more suffering, more weakness in the labor market and increased bank lending fears following a series of US bank collapses last month.
Retail sales began to decline since the beginning of the year, and this left an impact on consumer confidence.
“Gross domestic product is now very dependent on the consumer, but spending growth has been slowing for a month or two,” says J. Bryson, an economist at Wells Fargo.
He added, “We expect the US economy to enter a recession, and we expect it to be of medium intensity, in the second half of the year.”
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