WASHINGTON (AP) – The US economy contracted at a rate of 5.0% in the first quarter and much worse performance is expected in the current three-month period, when the coronavirus pandemic began to spread across the US USA
The Commerce Department reported Thursday that the decrease in gross domestic product, the total production of goods and services, in the January-March quarter did not change with respect to the estimate made a month ago.
It was the largest quarterly decline since a 8.4% drop in the fourth quarter of 2008 during the worst financial crisis since the Great Depression.
The first quarter captured just two weeks from closings that began in many parts of the country in mid-March.
Economists believe that GDP has fallen about 30% from April to the end of this month.
That would be the largest quarterly decline on record for a remote possibility: three times greater than a 10% drop in the first quarter of 1958.
Forecasters believe the economy will recover in the second half of the year. The Congressional Budget Office forecasts a growth rate of 21.5% in the next quarter from July-September, followed by a 10.4% gain in the fourth quarter.
However, a handful of states, particularly in the south, have begun to report increasing infections. And even if a rebound materializes in July, it will follow seismic losses that would mean a decline in economic output throughout the year.
While overall GDP was unchanged during the first quarter, the composition changed slightly with downward revisions in consumer spending, exports, and commercial inventories offset by an upward revision in business investment.
Thursday’s report was the government’s third and final look at first-quarter GDP.
The panel of economists who determine when recessions begin in the United States said that February marked the end of the longest economic expansion in United States history, 128 months of uninterrupted growth that began in the wake of the 2008 financial crisis.
President Donald Trump has stated that the economy will return with a V-shaped recovery that will begin this summer. Larry Kudlow, the president’s top economic adviser, said Thursday that even with the resurgence of COVID-19 cases, the administration is still looking for a strong recovery in the second half of this year.
“I think V’s strong recovery is still there,” Kudlow said in an interview on Fox Business Network. Kudlow predicted that GDP will increase at an annual rate of 20% in the third quarter and fourth quarter and then increase by 5% in the first quarter, which he said would recoup all GDP losses in the first half of this year. .
Economists are not so optimistic. They are concerned about the devastating impact of a second wave of infections and think that it will take a couple of years to recover the lost production of GDP.
“The basis for this recovery is an improvement in health prospects,” said Lydia Boussour, a US economist at Oxford Economics. “Amid the rapid rise in infections in many states, the risks to the outlook are dangerously tilted to the downside.”
Financial markets plummeted on Wednesday, reflecting new concerns about reports of increased coronavirus cases in many states. They rose moderately on Thursday.
“I don’t remember the economy facing so much uncertainty,” said Sung Won Sohn, a professor of economics and business at Loyola Marymount University in Los Angeles. Until a vaccine is found and widely available, she said, the high uncertainty can be expected to last.
Mark Zandi, chief economist at Moody’s Analytics, said that for the country to avoid a double-dip recession, an effective vaccine must be available next year, and new waves of coronavirus cases will need to do less harm than the first wave. Congress needs to approve another package of at least $ 1 trillion in additional support for laid-off workers and struggling businesses soon, Zandi said.
“If any one of these three things doesn’t happen, then the prospects are much darker,” Zandi said. “I think we are in a recovery mode right now, but the economy is very fragile.”
Associated Press writer Darlene Superville contributed to this report.