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Double-dip feared as US economic growth loses pace
Fears that the world's biggest economy could be heading into a double-dip recession took hold on Friday after US growth was shown to have contracted sharply in the second quarter.
By James Quinn, US Business Editor
Published: 8:55PM BST 30 Jul 2010
Double-dip feared as US economic growth loses pace
The Dow Jones Industrial Average fell by as much as 120 points after annualised growth in gross domestic product (GDP) was found to have slowed from 3.7pc in the first quarter to 2.4pc in the second. That came on the back of growth of 5pc in the final three months of 2009. The US was initially thought to have grown by 2.7pc in the first quarter but that was revised upwards on a day of surprises for economists.
The US Commerce Department also revised downwards GDP figures all the way back to the beginning of 2007. The second-quarter slowdown led economists to question whether the US might be poised to enter a period of negative growth later in the year, leading to a much-feared double-dip recession. The Dow Jones fell sharply after the release of the GDP data before recovering ground to settle down 40.72 at 10,426.44 in lunchtime trading.
"The post-recession rebound is history," said Bart van Ark, chief economist for the Conference Board, an economic think-tank. conomists had predicted second-quarter growth of 2.5pc, but their disappointment was compounded by the revised data for the first three months of 2010. onsumer spending – which accounts for two-thirds of US GDP and is seen as a lead indicator of economic recovery – slowed, rising by 1.6pc in the quarter, compared with 1.9pc in the prior three months.
The savings rate rose to 6.2pc as consumers instead put money to one side. The biggest factor in the slowdown was the US's widening trade deficit, following a 28.8pc surge in imports – the sharpest rise in 26 years – against a 10.3pc rise in exports. It was the size of the downward revisions to previous years' growth which most concerned economists. In 2009 the economy was previously estimated to have declined by 2.4pc, but the figure was revised to a drop of 2.6pc.
In 2008, the revision was from 0.4pc to no growth, while 2007's 2.1pc growth rate was revised to 1.9pc. "The prospects of a double-dip or some facsimile thereof were bolstered… by the contours of the second-quarter GDP report," said David Rosenberg, chief economist at Gluskin Shef.
Nigel Gault, chief US economist at IHS Global Insight, was more wary, saying that a full reversal into a double-dip recession "remains a possibility" but was not his "base case".
The disappointing growth numbers were compounded by the International Monetary Fund's (IMF) annual report on the US economy. The IMF said there may be a need for the Obama administration to increase the amount of fiscal stimulus in order to boost the recovery, warning the "outlook remains uncertain".
