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The US economy posts a surprise contraction in the first quarter, but a big rate hike is yet to come | business news

The US economy went into reverse gear for the first three months of the year, according to early official data suggesting a much gentler slowdown in growth.

The Department of Commerce’s first estimate for January-March gross domestic product (GDP) showed an annual contraction of 1.4%.

Economists had forecast growth of 1.1% – down from the 6.9% annual rate over the last three months of 2021.

It had been predicted that the world’s largest economy would feel the effects of rising inflation seen before Russia’s tanks rolled up Ukraine End of February.

However, the data showed that consumer and business spending remained buoyant during the quarter despite price pressures, mainly caused by rising oil prices.

Consumer spending rose 2.7% on price increases of 7.8% in the quarter.

The department said the main reason for the drop was a slower replenishment of goods in stores and warehouses – a result of the COVID-related global supply disruption – and a sharp drop in exports.

The figures raised fears about the growing threat of a recession as US-China trade continues to be hampered by China’s fight against the pandemic, which has halted orders and delayed shipments, particularly from Shanghai.

This is as the fallout from Russia’s actions, including sanctions imposed on Moscow in retaliation for its invasion, continues to add to inflationary pressures and threaten purchasing power.

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Trade flows have been disrupted by high demand as the COVID crisis has eased in the US but remains restricted in China. Image: AP

However, financial analysts and economists remain convinced that despite the economic slowdown, the US Federal Reserve remains on track to raise interest rates by 0.5% next week to address the inflation problem.

That’s because despite the struggles, the US job market has remained resilient — with an unemployment rate of just 3.6%.

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“China’s lockdowns are causing real supply chain problems”

Strong wage growth, a consequence of firms’ retention policies to combat labor shortages, is credited with keeping consumer spending stable despite rising bills.

Fed Chair Jerome Powell has signaled two more 0.5% rate hikes could come before the end of the year, betting that inflation can be tamed to some extent without triggering a recession.

The US economy posts a surprise contraction in the first quarter, but a big rate hike is yet to come | business news

Source link The US economy posts a surprise contraction in the first quarter, but a big rate hike is yet to come | business news

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