The United State economy – the largest of the world, has contracted to an extent that is the highest in a decade in the first quarter of the current year primarily because of the lockdown and the closure of businesses as a measure to try and stop the spread of the coronavirus pandemic.
According to official figures released on Wednesday, the American economy contracted at an annual rate of 4.8 per cent during the first quarter.
This quarter brought to an end a record period of expansion and was the first since 2014.
However the data is not reflective of the entire crisis because many of the coornavirus induced restrictions were not imposed until March.
The fact that the economy has suffered since then is evident from the fact that more than 26 million Americans have filed for unemployment benefits with historic declines in business activity and consumer confidence. In the second quarter, the American economy is expected to contract by as much as 30 per cent according to economists.
“This is off the rails, unprecedented,” said Mark Zandi, chief economist at Moody’s Analytics. “The economy has just been flattened.”
This contraction in the American economy is a part of a global trend of economic contraction because of the coronavirus pandemic.
The Chinese economy contracted by 6.8 per cent in the first quarter when the country had imposed restrictions on travel and business for the better part of the first quarter. The contraction in the second largest economy of the world was the highest since records were kept since 1992.
Germany too warned that its economy could contract by 6.8 per cent this year.
“We will experience the worst recession in the history of the federal republic” founded in 1949, Economy Minister Peter Altmaier said.
The American economy was expected to grow about 2 per cent this year before the coronavirus pandemic hit the world and the global economy. Some form of lockdown and restrictions were imposed in more than 95 per cent of the country by mid April. And while some of the states of the country have started to open up their economies, many others still have them in place – which includes some of the major economic drivers for the US economy such as New York and California.
Economists said that the estimate for the US economic numbers for the first quarter could be revised lower as more information reaches the government even while they also expect the hit to the economy because of the coronavirus pandemic will be felt most hard in the second quarter ending June.
“It’s very difficult to gauge the depth of the decline,” Zandi said. “We won’t really know the extent of the economic damage for years.”
There was a 7.6 per cent drop in consumer spending in the United States in the forts quarter which accounts for two thirds of the country’s economy, the Commerce Department said on Wednesday.
(Adapted from BBC.com)