The US economy is “resilient”, claims Biden, despite the unexpected drop in GDP

published on Thursday, April 28, 2022 at 9:18 p.m.

US growth suffered an unexpected halt in the first quarter, with gross domestic product even contracting by 1.4%, but the economy “remains resilient”, said Joe Biden, citing “technical factors” to explain this downturn.

The Gross Domestic Product of the world’s largest economy fell at an annualized rate, ie projected at this rate over the year. Compared to just last quarter, the decline is 0.4%, according to Commerce Department data. Analysts predicted growth of 1.1%.

“The United States faces the challenges of Covid-19 around the world, the unwarranted invasion of Ukraine by (Russian President Vladimir) Putin and global inflation,” the US president said in a statement. .

Then, during a press conference, he assured that he was “not worried” about a risk of recession, highlighting consumer spending by households and businesses and an unemployment rate at one historical low.

The first quarter nevertheless marks a clear reversal of the trend compared to the annualized growth rate of 6.9% recorded in the fourth quarter of 2021. And this underperformance will seriously complicate the task of the American Central Bank (Fed), which was planning to aggressively raise the rates to curb inflation.

This quarter is the weakest since the spring of 2020, when the pandemic plunged the US economy into a deep recession.

Between January and March, the world’s largest economy was affected by a wave of infections by the Omicron variant and the persistence of problems in supply chains.

A few economists have recently warned of the possibility of a short-term recession, pointing to a combination of factors affecting the economy starting with inflation at a pace not seen since the early 1980s.

In the first quarter, consumer prices rose 6.3% year on year, according to the PCE inflation index, the one favored by the American central bank (Fed), published with GDP on Thursday.

However, it takes two consecutive quarters of GDP contraction for an economy to be considered in recession. We will therefore have to wait until the second quarter to find out.

In addition to inflation, companies are facing a shortage of labor due to mass retirements and resignations by the millions each month to obtain a better paying job.

– “Robust for the moment” –

At the same time, the ministry notes the decrease in government aid, the drop in exports (-5.9%), public spending by the federal state (-5.9%) while imports increased by 17.7%.

The Russian-Ukrainian war that started on February 24 further accentuated the problems on global supply chains and inflationary pressures.

The majority of economists nevertheless believe that the American economy remains solid because consumption, the historic engine of growth in the United States, has held up.

In the first quarter, these expenses increased by 2.7%, after 2.5% in the last quarter of 2021.

“Weak on the surface, but tough on the inside,” tweeted Gregory Daco chief economist EY Parthenon, while taking care to add in parentheses: “For now.”

“The first contraction in GDP since the end of the recession is sure to stoke fears of a slowing economy, but on closer inspection, the report isn’t as worrisome as it sounds. “, commented for her part Lydia Boussour, economist at Oxford economics.

Still, the outlook is highly uncertain as the war in Ukraine slows growth for a majority of countries around the world and China’s zero-tolerance Covid policy continues to fuel supply issues.

Eyes are now on the Central Bank which meets on Tuesday and Wednesday. Its chairman Jerome Powell said last week that the Fed was considering raising key rates faster than expected.

For Rubeela Farroqi, economist at High Frequency Farooqi, “the positive trend in consumer spending and business investment” should encourage the Fed to stay the course.

Joe Biden once again urged Congress to vote on his investment plans.

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