Thu | Oct 1, 2020

US economy grew 2.1%, virus threat looms

Published:Friday | February 28, 2020 | 12:16 AM

The United States economy grew at an annual rate of 2.1 per cent in the final quarter of last year, but damage from the spreading coronavirus is seen as likely depressing growth in the current quarter and for 2020 as a whole.

The US Commerce Department said Thursday that the overall pace of growth in the October-December quarter was unchanged from its initial estimate a month ago, though the components were slightly altered.

A slowdown in business restocking was less severe than first believed. But a cutback in business investment in new equipment was more of a drag on growth than initially estimated.

Economists have been downgrading their forecasts for the first quarter of this year as fears of the virus’ impact have escalated. Stock markets have plunged this week on news that the number of coronavirus cases worldwide has now topped 81,000. The virus, which started in Wuhan, China, has spread to more than 30 countries, including the United States, Italy and South Korea.

Vital supply chains from China that companies in the United States and elsewhere depend on have been disrupted, and that problem is expected to worsen.

That fears have inflicted the worst losses on US stocks in two years, less than a week after Wall Street was hitting record highs.

Economists are warning that if the virus turns into a global pandemic, the impact could be severe enough to push the global economy and the US economy into recessions.

“The global economy was already very weak because of the trade war, and it would not take much to shove it on its heels,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi said his baseline forecast, which optimistically assumes that the outbreak remains largely contained in China and dissipates by spring, projects that global growth will slow to 2.4 per cent this year – 0.4 percentage point lower because of the virus.

He expects the annual pace of US growth to slow to 1.3 per cent in the current quarter, down by 0.6 percentage point because of the virus, and is forecasting US growth of 1.7 per cent for the year.

Diane Swonk, chief economist at Grant Thornton, said the possibility of two rate cuts this year “has gone up dramatically” because of the virus threats.