Published On: Thu, Jan 31st, 2013

US Economy in Surprise Downturn

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Economic analysts who had been predicting 1.1% growth for the world’s largest economy in the final quarter of 2012 got a shock yesterday, when official GDP estimates showed that the United States economy shrank at an annualized rate of 0.1%.

If Wednesday’s estimates are confirmed by the final figures, this would be the first contraction of the US economy since the recession in 2009.

Markets took the bad news in their stride however, as most analysts see the fourth quarter contraction as a temporary blip rather than the start of a new downward trend. Fears over the so-called ‘fiscal cliff’ – a series of tax rises and spending cuts which had been due to come into force at the start of 2013 – are thought to have hit consumer and business confidence and may be the main cause of the contraction. The US economy had been growing at a healthy 3.1% from July to September.

A last minute political deal avoided most of the negative impact of the fiscal cliff, although tax increases on high earners and the expiry of a payroll tax holiday for all US employees could still hit growth in the first quarter of 2013. Most analysts are now predicting weak growth for the first quarter, picking up as the year progresses.

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About the Author

- Dean Walsh is the owner and editor of World News Curator. He also owns and runs Ourly News and a range of other online publications.

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