US posts anaemic 0.2% GDP growth in Q1

news
30 April 2015

Economic growth in the US, the world's largest economy, was a sluggish 0.2 per cent in the first quarter despite increased consumer spending and private inventory investment that were partly offset by other sectors of the economy, according to the advanced GDP estimate released by the US bureau of economic analysis yesterday.

The severe first quarter slowdown that was well below economists' forecast of around 1 per cent followed a 2.2-per cent growth in the December quarter.

Last year too, the first quarter figure showed a dismal 2.1-per cent GDP contraction, but that was followed by two robust quarters with 4.6 per cent and 5 per cent growths respectively.

According to economists, the poor Q1 growth was augmented by a harsher-than-usual winter, strong dollar and lower oil prices. However, they remain upbeat about the growth outlook and expect the economy to rebound in the following quarters.

The first quarter slowdown reflected a deceleration in personal consumption, downturns in exports, residential and non-residential investment and in state and local government spending that was partially offset by a deceleration in imports and upturns in private inventory investment and federal government spending.

Consumer spending, which accounts for about 70 per cent of overall economic activity, grew 1.9 per cent in Q1, down from 4.4 per cent in the fourth quarter.

Non-residential fixed investment dropped to 3.4 per cent in Q1 from 4.7 per cent in the in Q4, while residential fixed investment increased 1.3 per cent compared with an increase of 3.8 per cent.

Exports of goods and services decreased 7.2 per cent in Q1 in contrast to a 4.5-per cent increase in the previous quarter. Imports were up 1.8 per cent during the quarter compared with a 10.4-per cent increase in Q4.

Federal government spending increased 0.3 per cent in Q1 in contrast to a 7.3-per cent drop in the December quarter. However, state and local government spending decreased 1.5 per cent in Q1 compared to an increase of 1.6 per cent.

The price index for gross domestic purchases, an indicator of prices paid by US residents decreased 1.5 per cent, compared to 0.1-per cent decrease in the fourth quarter.

A second GDP estimate for the first quarter based on more complete data will be released on 29 May.

Despite the slowdown, the US is still one of the fastest growing economies in the developed world.

Overall, the US economy expanded 2.4 per cent in 2014, and a fortnight ago, the IMF although cut its growth forecast for the country to 3.1 per cent in 2015 from 3.6 per cent, it is still well above euro zone's 1.5 per cent and Japan's 1 per cent.

"For the US the strong dollar is good but it slows down spending. But the US has the tools to respond to it if the economy were to slow down. They could increase interest rates later, or may be able to use fiscal stimulus.'' said Olivier Blanchard, chief economist at the IMF.

The IMF's global growth projection for this year is around 3.5 per cent. High debt levels continue to act as a brake on the world economy in several countries, it said.

Although the Chinese growth was pegged at 6.8 per cent, the global lender said India should power ahead with a growth of 7.5 per cent in 2015.

Meanwhile, on Tuesday the UK's office of national statistics (ONS) also painted a dismal growth picture for the first quarter, registering a 0.3-per cent expansion in its preliminary estimate, which was below analysts' forecast of 0.5 per cent.

 An increase in services output was offset by other main sectors including construction, production, and agriculture.

The latest data will be discouraging for the country's prime minister David Cameron and his colleagues, who have made economic strength a key part of his campaign, as the country is heading for a general election on 7 May.

Chancellor George Osborne commented on Twitter: ''Good news economy continues to grow, but this is a critical moment and reminder you can't take recovery for granted,'' further adding that ''GDP figures show future of the economy is on the ballot paper."





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