Growth in the US economy unexpectedly slowed in the first quarter

Growth in the US economy unexpectedly slowed in the first quarter

Growth of the US economy unexpectedly slowed in the first quarter

Stores close in Upper Darby, Pennsylvania, U.S., April 29, 2020.

Washington – United States gross domestic product (GDP) rose 1 in the first quarter on a full-year basis .1 percent. That's an unexpectedly sharp slowdown from 2.6 percent in the fourth quarter, the U.S. Commerce Department said in its flash estimate today. Analysts had expected the world's largest economy to slow growth to just two percent.

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The significant slowdown in growth is primarily due to a decline in investment in inventories. The US economy is slowing due to, among other things, the effects of rising interest rates and high inflation. Growth is expected to slow further in the coming period, CNBC reported.

Economic growth slowed even though the price index for personal consumption expenditures increased, rising by 4.2 percent. Analysts expected its growth to be 3.7 percent. The American Central Bank (Fed) closely monitors the personal consumption expenditure index when deciding on the base interest rate.

According to analysts, the Fed will raise the base interest rate by a quarter of a percentage point again next week despite the slowdown in growth. Since last March, when the prime rate was close to zero, the Central Bank has already raised rates by 4.75 percentage points. The base interest rate is now in the range of 4.75 to 5.00 percent.

The inflation rate in the US was five percent in March, the lowest in almost two years. Although it has fallen from the June maximum of nine percent, it remains significantly above the Fed's two percent inflation target..

At the same time, economic growth was adversely affected by problems in the banking sector, which are likely to be reflected in the economy. Those two factors — rate hikes and a potential credit crunch — are expected to push the economy closer to recession later this year. But consumers are holding out for now and are expected to use excess savings and purchasing power to keep the economic downturn short and shallow. According to estimates, growth will also be supported by a strong labor market – the unemployment rate decreased again in March and amounted to 3.5 percent.