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Shipping containers are unloaded from ships at a container terminal in Los Angeles, California on April 7. Photo: Reuters

US economy grows 6.4 per cent in first quarter as recovery gathers momentum

  • US economy stood at US$22.05 trillion at the end of March
  • ‘Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,’ says the Fed

The US reported that its economy grew 6.4 per cent on an annualised basis in the first quarter, a faster clip compared to the previous quarter as the pandemic turned a corner with a concerted push for vaccination.

The US economy expanded to US$22.05 trillion at the end of March, according to preliminary data released by the Commerce Department on Thursday. Economists had estimated the first quarter to grow 6.1 per cent.

In comparison, China soared 18.3 per cent in the first quarter from a year earlier. Its economy contracted 6.8 per cent in the same period last year.

“The typical year-on-year comparisons aren’t going to be terribly useful in the months ahead, they will almost all show huge increases,” said Patrick Chovanec, economic adviser at Silvercrest Asset Management, referring to the low base numbers from last year as economies were battered in the midst of the pandemic. “It’s far more instructive to look at the absolute numbers, and compare where things stand compared to pre-Covid.”

The growth rates were choppy last year. For the first three months of 2020, the US economy shrank 5 per cent as restrictions for economic activities started in mid-March. As the virus raged on, the economy contracted 31.4 per cent in the second quarter, then bounced back 33.4 per cent in the third, and grew 4.3 per cent in the fourth quarter, according to the Commerce Department.

In absolute terms, the US added US$554.2 billion in the first quarter of 2021. Strong personal consumption, coupled with government spending helped partly offset the weakness in private investments and exports.

In 2020, the gap between the world’s two largest economies was reduced by about US$1 trillion. 

China GDP: economy surged record 18.3 per cent in first quarter compared to a year earlier

Going forward, it remains uncertain whether the gap between the two rivals will continue to shrink.

It is possible that the US growth rate will continue to look a lot better for the rest of the year as economic activities recover faster now that more than 40 per cent of the population has received at least one dose of vaccine.

The Federal Reserve on Wednesday upgraded its view of the US economic recovery.

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the Federal Open Market Committee said. “The sectors most adversely affected by the pandemic remain weak but have shown improvement.”

Meanwhile, China’s outsize jump in growth rate in the latest quarter ended in March was partly because of the country’s faster recovery from the pandemic. It was in comparison to a low figure from the previous year.

China locked down the then-epicentre of the disease, Wuhan, on January 23 last year, causing its economy in that quarter to shrink by 6.8 per cent. 

China was the only major economy to record a positive growth at 2.3 per cent last year. The US’s total output contracted 3.5 per cent in 2020. But China’s expansion last year could make future outsize growth rate less likely. 

Many economists expected the growth in China to lose steam, growing about 7 per cent in the second quarter, and slow further for the remaining year.

US to keep China’s trade-deal performance under the microscope

Daniel Rosen at consulting firm Rhodium Group said in March while he expected Chinese government to pump more stimulus into the economy this year, private demand – household consumption, private investment, and net sales to foreigners – would have “much less growth”.

Silvercrest’s Chovanec said both countries still face long-term issues in their economies.

“Tensions between the US and China remain on the boil, and could continue to have negative effects on investment, trade, and even travel between the world’s two largest economies,” he said. “Who wins the title of ‘world’s biggest economy’ and when is less important than how each economy responds to its own deeper challenges.”


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