American GDP even lower than expected

American GDP even lower than expected

After yesterday’s weak Consumer Confidence indicator, the American economy prepares itself for another hit given by the GDP report.

At the beginning of the year, the economy seemed to be expanding at a high rate, but the pandemic put an end to it. Now the economy is in free fall.

The Advanced GDP report released by the Bureau of Economic Analysis provides information about the “changes in the inflation-adjusted value of goods and services produced by the economy.” Given the current situation, analysts expect shrinkage of the GDP of 3.8% or even more for the first trimester. Hope for an acceptable report lies in the government’s spending.

The 4.8% released today is the most significant drop that happened since the fourth quarter of 2008 when it dropped by 8.4%. It is the first quarterly contraction in six years. But the forecast for the next trimester is much dramatic since many businesses closed or went bankrupt, and people filed for unemployment benefits. The Congressional Budget Office believes that the GDP will drop even more reaching a record unseen since 1947 when these types of records started.

It all depends on how the pandemic effects are handled from now, as people fear the second wave of infections once the economy reopens. A small rebound is expected to start mid-2021 if a vaccine against the novel virus will appear.

The only one that sees the picture in brighter colors is President Trump, who believes that in the third quarter, the economy will rise, followed by an "incredible fourth quarter and you're going to have an incredible next year."

The American benchmarks traded lower for a short time after the release: USA500 dropping 0.52%, USA30 lost 0.13%, and TECH100 shed more than 1%.

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Sources: marketwatch.com, forexfactory.com, cnbc.com

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