Historic US GDP figures rock markets

The US economy has suffered its worst contraction since records began, sending global stock markets into steep decline

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On Thursday, July 30, the US Department of Commerce officially confirmed that the Covid-19 crisis has led to the largest reduction in American Gross Domestic Product since records began in 1945. In the second quarter of 2020, US GDP fell at an annualised rate of 33 per cent. This drop followed Q1’s 4.8 per cent contraction, which marked an end to the longest economic expansion in American history.

The latest figures far surpass the 10 per cent reduction in economic growth witnessed during the Eisenhower Recession of 1958.  The 8.4 per cent reduction in GDP at the height of the 2008 Global Financial Crisis, could be said to appear minor by comparison.  

The lockdowns imposed by American states to limit the spread of Covid-19 were at their most restrictive in the three months to the end of June. While lives may have been saved, the measures severely impacted the largest economy in the world.  

Although the Q2 contraction was actually below economists’ predictions of a 35 per cent fall, this proved cold comfort as the historic figures weighed on global stocks. Towards the close of trading, the FTSE 100 stood down 2.5 per cent while the pan-European Euro Stoxx 50 had fallen by more than 3 per cent. By mid-morning EDT, the Dow, Nasdaq and S&P 500 were trading down 1.2, 0.58 and 0.99 per cent, respectively.

In its latest report, the Bureau of Economic Analysis observed: “The decline in second-quarter GDP reflected the response to Covid-19, as 'stay-at-home' orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses.”

The American economy is now thought to be around 10 per cent smaller than it was in the early months of the year.

 

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