US economy contracts 5%, worse likely to come

The United States economy shrank at a five per cent rate in the first quarter with a much worse decline expected in the current three-month economic period, which will show what happened when the pandemic began spread across the US.

The Commerce Department reported Thursday that the decline in the gross domestic product, GDP, the total output of goods and services, in the January-March quarter was unchanged from the estimate made a month ago.

The 5.0 per cent drop was the sharpest quarterly decline since an 8.4 per cent fall in the fourth quarter of 2008 during the depths of the worst financial crisis since the Great Depression.

The first-quarter period captured just two weeks of the shutdowns that began in many parts of the country in mid-March.

Economists believe that GDP plunged around 30 per cent from April through to the end of this month.

That would be the biggest quarterly decline on record, three times bigger than the current record holder, a 10 per cent drop in the first quarter of 1958.

Forecasters believe the economy will rebound in the second half of the year. The Congressional Budget Office is predicting a 21.5 per cent growth rate in the upcoming July-September quarter, followed by a 10.4 per cent gain in the fourth quarter.

However, a handful of states, particularly in the south, have begun to report surging infections. And even with a rebound in growth, if it does materialise in July, it would come after seismic losses that would mean a decline in economic output for the entire year.

While the overall GDP figure was unchanged for the first quarter, the composition shifted slightly, with downward revisions to consumer spending, exports and business inventories offset by an upward revision to business investment.

The Thursday report was the government’s third and final look at first quarter GDP.

The panel of economists who have the job of declaring US