USA: The GDP decline in Q1 is only a slight foretaste of the slump in the current quarter

The restrictions imposed on economic and social life by the Corona pandemic have pushed the US economy into recession, as confirmed by the latest data. In the first quarter, gross domestic product (GDP) shrank by 4.8 percent, projected for the year as a whole. However, the negative Q1 data are probably only a slight foretaste of the sharp downturn expected in the current quarter.

This is supported by the fact that consumer spending has been limited to the bare essentials as a result of the nationwide output restrictions. Moreover, both industrial companies and the service sector have suffered an unprecedented slump in sentiment. Consumers‘ assessment of their current situation is equally gloomy, with more than 26 million initial applications for unemployment benefits filed in recent weeks. Ultimately, economic output is expected to decline by around 30 percent in the second quarter. The financial aid measures from the government, which now amount to around USD 2.6 trillion, cannot take effect so quickly to prevent this. In addition, there are likely to be considerable delays in payments to private households and the companies affected, in some cases for various reasons.

The GDP numbers for Q1 show only an imperceptibly small growth impulse from the public side. At the same time, private consumption fell by 7.6 percent. Behind this is a double-digit drop in demand for services. However, it was not until the end of March that politicians were able to agree on the first major package of measures.

The bottom line is that the US economy is going through the worst recession since World War II and is likely to shrink by around 6 percent this year. Mainly due to the increased unemployment, we expect only very limited catch-up effects in the third quarter, and in some sectors the reemployment of employees is likely to be quite hesitant. In the fourth quarter, the positive effects of the fiscal support measures should then become more visible. In the coming year we expect strong economic growth of just under 6 percent, driven by robust consumer spending and a recovery in exports and corporate investment.

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