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Interest rate hikes dampen GDP growth in the United States

2023-05-25T13:13:17.536Z

Highlights: The economy grew at an annualized quarterly pace of 1.3% in the first quarter, up from the 1.1% initially announced. Growth is clearly lower than the 2.6% annualized pace with which 2022 was dismissed, equivalent to a quarterly rate of 0.7%. The Federal Reserve expects the US economy to enter into recession at the end of this year, according to the minutes of its last meeting.Interest rates are holding back especially the construction sector, which is very sensitive to the price of money. Other sectors are seeing their activity slow amid tighter financial conditions and inflation.


The economy grew at an annualized quarterly pace of 1.3% in the first quarter, up from the 1.1% initially announced


America's vaunted recession is not coming, but the economy is cooling. Growth data released today by the Commerce Department's Bureau of Economic Analysis shows that U.S. gross domestic product (GDP) grew at an annualized quarterly rate of 1.3% in the first quarter of the year. That equates to an unannualized quarterly rate of 0.3%.

The figure represents an upward revision from the first estimate, of 1.1%, published a few weeks ago. Growth is clearly lower than the 2.6% annualized pace with which 2022 was dismissed, equivalent to a quarterly rate of 0.7%, but it represents the third consecutive data of expansion of the economy. Activity contracted in the first two quarters of 2022, but due to extraordinary factors related mainly to international trade and the variation in inventories that prevent in principle talking about recession.

In the first quarter of this year, the increase in real GDP reflected increases in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment, which were partly offset by declines in private inventory investment and residential fixed investment. Imports, which remain in the calculation of GDP, increased, explains the Bureau of Economic Analysis.

Interest rates are holding back especially the construction sector, which is very sensitive to the price of money. Other sectors are seeing their activity slow amid tighter financial conditions and inflation that erodes consumers' purchasing power. The labour market, however, remains very strong, with the unemployment rate at 3.4%, its lowest in more than half a century.

The Federal Reserve expects the US economy to enter into recession at the end of this year, according to the minutes of its last meeting, released on Wednesday, due to the "new expected tightening of bank credit conditions, amid already restrictive financial conditions", according to the minutes, which go a little further: "Real GDP was expected to slow over the next two quarters, before registering a modest decline in both the fourth quarter of this year and the first quarter of next year," the minutes add.

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Source: elparis

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