JAKARTA (TheInsiderStories) – IHS Markit estimated, the United States (US) economy fell at a 35.3 percent in the second quarter, which subtracts about 25 percentage points from GDP growth. Other contributors to the second-quarters weakness include declines in inventory investment, net exports, nonresidential fixed investment, and residential investment, which each subtract from GDP growth but by far smaller amounts.
“This would be far and away the steepest one-quarter decline in quarterly data dating back to 1947. To put this in a recent historical context, the worst quarter of the Great Recession was the fourth quarter of 2008, when real GDP contracted at an 8.4% annual rate.” said Ben Herzon, senior economist at IHS Markit on Thursday (07/30)
Implicit in the dramatic second-quarter decline in GDP is the beginning of recovery, as a huge decline in monthly growth in April is partially reversed by increases over May and June. For the third quarter, IHS Markit currently forecast an annualized increase of 20.0 percent.
He continued, robust growth in the third quarter mainly reflects the estimated recovery through June, which elevates the level of third-quarter GDP relative to that of the second quarter. “Several high-frequency indicators, though, support our estimate of a material slowing in the pace of recovery beginning in July, as households and businesses curtail activity in response to a resurgence of new COVID-19 infections,” he adds.
Recently, the Federal Reserve (Fed) rated US economy would shrink to 6.5 percent this year. However, the central bank expects the economy will return to growth in 2021, with unemployment falling to 9.3 percent and GDP increasing 5 percent, followed by 3.5 percent growth in 2022 amid the COVID-19 pandemic.
Based on the latest estimation, chairman of the Fed, Jerome Powell, assured that the Bank is committed to using its full range of tools to support the US economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The virus outbreak, he noted, is causing tremendous human and economic hardship across the US and around the world. The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses, said the governor.
In addition, said Powell, weaker demand and significantly lower oil prices are holding down consumer price inflation. But, financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to US households and businesses.
Then, the ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. He said, the policymakers will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy.
The secretary of commerce reported, in the first quarter of 2020, US economy shrank 4.8 percent, the first contraction since 2014. The contraction was because efforts by the government to stem the spread of the COVID-19 have forced many companies in the country to close and consumers not to leave their homes.
“Today’ GDP numbers are weak, but in line with expectations as a result of the COVID-19-driven disruptions to daily lives at home and around the globe that have rocked global markets and supply chains,” said the secretary of commerce, Wilbur Ross in official statement released on on April 29.
He continued, “We continue to have the most resilient economy in the world, driven by innovative and hardworking Americans who have shown that they are willing to make the needed sacrifices to defeat this invisible enemy.”
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