Virus sees world's biggest economy suffer sharpest drop in more than a decade
The US economy shrank at a 4.8 per cent annual rate last quarter as the coronavirus pandemic shut down much of the country and began triggering a historic recession.
The US economy shrank at a 4.8 per cent annual rate last quarter as the coronavirus pandemic shut down much of the country and began triggering a recession that will end the longest expansion on record.
Yet the drop in the January-March quarter will be only a precursor of a far grimmer report to come on the current April-June period, with business shutdowns and layoffs striking with devastating force.
With much of the economy paralysed, the Congressional Budget Office has estimated that economic activity will plunge this quarter at a 40 per cent annual rate.
That would be, by a breathtaking margin, the bleakest quarter since such records were first compiled in 1947. It would be four-times the size of the worst quarterly contraction on record set in 1958.
The Commerce Department estimated Wednesday that the gross domestic product - the total output of goods and services - posted a quarterly drop for the first time in six years.
That was the sharpest fall since the economy shrank at an 8.4 per cent annual rate in the fourth quarter of 2008 in the depths of the Great Recession.
"The longest US economic expansion has ended," said Gregory Daco, chief economist at Oxford Economics.
Daco predicted that the recession will cause a drop in output that will be three-times the size of the economic decline during the Great Recession.
In just a few weeks, businesses across the country have shut down and laid off tens of millions of workers. Factories and stores are shuttered. Home sales are falling. Households are slashing spending. Consumer confidence is sinking.
The GDP report showed that the weakness was led by plummeting consumer spending, which accounts for 70 per cent of economic activity.
Consumer spending also tumbled at an annual rate of 7.6 per cent in the first quarter — its steepest decline since 1980.
As the economy slides into what looks like a severe recession, some economists are holding out hope that a recovery will arrive quickly and robustly once the health crisis has been solved — what some call a V-shaped recovery.
Increasingly, though, analysts say they think the economy will struggle to regain its momentum even after the viral outbreak has subsided.
Many Americans, they suggest, could remain too fearful to travel, shop at stores or visit restaurants or movie theaters anywhere near as much as they used to.
In addition, local and state officials may continue to limit, for health reasons, how many people may congregate in such places at any one time, thereby making it difficult for many businesses to survive.
There is also fear that the coronavirus could flare up again after the economy is re-opened, forcing reopened businesses to shut down again.
The Trump administration takes a rosier view. President Donald Trump told reporters this week that he expects a "big rise" in GDP in the third quarter, followed by an "incredible fourth quarter, and you're going to have an incredible next year."
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