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US financial system: Recession fears surge as output drops – Biden’s shock blow | World | News

During the primary three months of 2022, gross home product (GDP) dropped at an annualised rate 1.4 % in its first contraction for the reason that Covid pandemic struck two years in the past. The fall was in stunning distinction to economists’ forecasts of a 1.1pc rise and can pile strain onto the US President simply as he begins his preparations for the essential midterm elections later this year. More worryingly for Mr Biden, this drop got here after the financial system grew at a sturdy 6.9 % tempo within the remaining three months of 2021.

To additional compound his distress, a second quarter of damaging progress would formally tip the US into recession.

Such a state of affairs would ship a monumental shock by a worldwide financial system that has already been rocked by Russia’s continued struggle in Ukraine.

It would additionally pile strain on the Federal Reserve to achieve management of curiosity rate rises – simply days after its boss Jay Powell indicated charges would begin growing by 0.5 share factors as a substitute of the same old 0.25.

Experts mentioned the newest drop was triggered by a fall in US exports, whereas imports skyrocketed amid big shopper demand as publish-lockdown disruption at ports started to ease.

But stripping this impact away, the US financial system really grew and shopper spending continued to develop at tempo.

Mr Biden desperately tried to color a constructive image of the newest figures, arguing the 1.4 % drop was “affected by technical factors”.

He mentioned in a press release: “The American financial system – powered by working households – continues to be resilient within the face of historic challenges.”

But with the midterms fast approaching towards the end of this year, the figures were seized upon by the Republicans as evidence the US President has lost control of the country’s economy.

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Ian Shepherdson, chief US economist at Pantheon Macroeconomics, claimed the latest GDP reading had been “massively distorted” by trade.

He said: “Net trade has been hammered by a surge in imports, especially of consumer goods, as wholesalers and retailers have sought to rebuild inventory.

“This cannot persist much longer, and imports in due course will drop outright, and net trade will boost GDP growth in Q2 and/or Q3.”

Lydia Boussour from Oxford Economics also played down the GDP drop, arguing the reading was “better than it looks”.

She said: “Beneath the weak headline print, the details of the report point to an economy with solid underlying strength and that demonstrated resilience in the face of omicron, lingering supply constraints and high inflation.”

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