The pandemic caused by the new coronavirus has put an end to more than ten years of growth in the United States, but the fall in GDP in the first quarter is nothing compared to the plunge expected for the following months, which promises to be historic.
The world’s largest economy saw its gross domestic product (GDP) fall 4.8% in the first quarter, the largest decline since the 4th quarter 2008, as the United States plunged into the financial crisis. The fall was then 8.4%.
The country has posted solid growth since the end of the financial crisis.
President Donald Trump welcomed the 2.3% recorded in 2019 and was targeting 3% per year. The good health of its economy was also a strong argument in its race for re-election to the White House.
But the shutdown of the economy, gradually during the month of March as confinement was extended to the majority of the population, to stem the pandemic, “led to rapid changes in demand”, notes the Commerce Department, which released the data on Wednesday.
Restaurants, bars, shops, schools have closed, only shops deemed essential can remain open, and “consumers have canceled, restricted or redirected their spending”. In five weeks, more than 26 million people have registered for unemployment, unprecedented.
‘Tip of the iceberg’
Only the end of the quarter was affected by these measures, which suggests a much more dramatic fall in GDP in the second quarter, and the entry of the United States into recession.
The decline is “the tip of the iceberg,” warned Kevin Hassett, Donald Trump’s economic advisor, on CNN on Tuesday, predicting, for the coming months, falls never seen.
Analysts’ projections point to a fall of around 30 to 40%. The extent will depend on the pace at which activity can restart, while avoiding a second wave of contamination.
Then, the economy should recover timidly in the second half. The International Monetary Fund thus expects a contraction of US GDP by 5.9% in 2020.
The United States could experience a recession three times stronger than during the financial crisis with this crisis, “and the strongest economic contraction since the Second World War,” according to analysts at Oxford Economics.
“The sudden cessation of private sector activity will be partially offset by massive public sector spending (…) and an unprecedented stimulus from the Fed,” they comment, but “the job losses will be traumatic. and the rebound after the virus will be very gradual and full of pitfalls ”.
For certain sectors particularly affected by the paralysis of the economy, like air transport, the return to the level of 2019 could take several years
Uncertain prospects
The forecasts for the American economy that the Fed could give Wednesday, at the end of its monetary meeting, are eagerly awaited.
“I think they will say: the economy is deteriorating at breakneck speed and the outlook is very uncertain,” said Michael Feroli, chief economist at JP Morgan. He fears that the members of the monetary committee will not venture “to take a firm position on the economic outlook, partly conditioned by elements of public health beyond their control”.
The US central bank, which meets its monetary committee every six weeks, cut interest rates to zero in mid-March, a measure it hasn’t used since the last recession.
The Fed has also launched an avalanche of measures, whether usual or new, in order to reassure the markets and give a breath of fresh air to businesses and households.
The measure used in the United States to estimate growth is the change in annual rate, which compares the GDP to that of the previous quarter, and projects the evolution over the whole year at this rate. It differs from the annual change, which compares GDP to that of the same quarter of the previous year. (ats / nxp)
Created: 04/29/2010, 5:53 p.m.
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