US economy at risk: the worst in a decade
The coronavirus pandemic officially snapped the United States’ economic growth streak in the first three months of the year.
The U.S. gross domestic product fell at a 4.8% annual rate in the first quarter of the year, the Commerce Department said Wednesday. That is the first decline since 2014 and the worst quarterly contraction since 2008, when the country was in a deep recession.
Treasury Secretary Steven Mnuchin said this week that he expected the economy to recover this summer as states lift stay-home orders and trillions of dollars in federal emergency spending reaches businesses and households. But most independent economists are much less optimistic. The Congressional Budget Office last week released projections indicating that the economy will begin growing again in the second half of the year but that the G.D.P. won’t return to its pre-pandemic level until 2022 at the earliest.
But it could be much worse. The problem is that business started closing until late March; that means that the real shutdown´s impact will be shown in the second quarter of the year, in which the GDP will probably contract at an annual rate of 30 per cent or more, a scale not seen since the Great Depression.
“They’re going to be the worst in our lifetime”
Dan North, chief economist for the credit insurance company Euler Hermes North America, said of the second-quarter figures in an interview with The New York Times. “They’re going to be the worst in the post-World War II era.”
The Federal Reserve pledged Wednesday to use its full range of tools to mitigate the effects of the downturn and restore the economy to health. Jerome H. Powell, the Fed chair, said Congress, too, would most likely have to do more.
Consumer spending, the cause of last decade’s economic expansion, fell at a 7.6 per cent rate. Business investment, which had already been struggling in part because of the trade war, fell for the fourth straight quarter. Imports and exports both declined sharply as the pandemic brought global trade to a near standstill.
The pandemic has hit the service sector particularly hard: Restaurants are closed, flights are nearly empty, and stadiums have sat unused for weeks. Spending on services fell at a 10.2 per cent rate in the first quarter, and spending at restaurants and hotels was down nearly 30 per cent on an annual basis. Consumers even spent less on health care, as they put off appointments and cancelled elective procedures.
When the new coronavirus began to spread in the United States this year, many economists expected a “V-shaped” recovery, with a sharp downturn followed by an equally swift rebound. But those projections were mostly predicated on a short pause in an activity that could be quickly reversed. The problem here is that lockdowns have already stretched into a second month, and there is no way of telling when the pandemic will truly end.
As lockdowns have stretched into a second month — and with disruptions likely to continue for weeks or months in many states — those hopes have faded.
Source: New York Times