2Q GDP Growth at 6.5% Due to Increased Consumption
Below Expected 8.4%
Concerns Over Slowed Growth in Second Half Due to Delta Variant Expansion
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[Asia Economy New York=Correspondent Baek Jong-min] Although the United States has recovered to the pre-COVID-19 economic level, the spread of the COVID-19 Delta variant has made it difficult to be optimistic about the situation in the second half of the year.
The U.S. Department of Commerce announced on the 29th (local time) that the second quarter gross domestic product (GDP) growth rate was 6.5% on an annualized basis. The quarter-on-quarter growth rate compared to the first quarter was 1.6%. The first quarter growth rate was revised downward from 6.4% to 6.3%.
The U.S. economy continued its growth for four consecutive quarters, recovering to the pre-COVID-19 level after 18 months, but the market is discussing the possibility that the second quarter growth may have peaked, as the result fell far short of the 8.4% expected by experts surveyed by Dow Jones.
The Wall Street Journal (WSJ) stated, "The U.S. economic outlook was bright until before the spread of the Delta variant," and predicted that growth in the second half of the year will slow down.
WSJ assessed that the increase in new confirmed cases due to the spread of the Delta variant and the reinstatement of mask mandates for companies are increasing economic uncertainty. The growth forecast for the U.S. this year, according to WSJ’s survey, is 7%.
One day earlier, Jerome Powell, Chair of the Federal Reserve, predicted that the economic damage caused by the Delta variant would not be significant, but analyses suggest that fears about uncertainty still remain.
A representative example is that if new COVID-19 infections increase, consumers may reduce travel and dining out again. Personal consumption expenditures, which led GDP growth by increasing 11.8% in the second quarter alone, could be hit by the spread of the Delta variant, potentially slowing economic recovery.
Production limitations of vehicles, computers, and other goods due to supply chain bottlenecks are also negative factors. If maritime logistics conditions do not improve, it could affect the year-end shopping season as well.
The lack of fiscal input plans similar to the government cash payments that boosted consumption capacity in the first half of the year is another factor darkening the outlook for the second half.
Professor Son Seong-won of Loyola Marymount University predicted, "Since supply chain bottlenecks are unlikely to improve quickly and if COVID-19 spreads again, economic growth will definitely face difficulties."
Rising inflation and labor shortages are also unstable factors that could lead to slower growth.
On the other hand, Aneta Makowska, an economist at Jefferies, said, "Although the second quarter figures were overall disappointing, the continued strength of private demand is very encouraging," and forecasted a 7.5% growth rate for the second half of this year.
The Joe Biden administration is expected to use the $1 trillion infrastructure investment bill, which is becoming visible for passage in the Senate, as a ‘firestarter’ for U.S. economic growth after the second half of the year.
The White House emphasized the recovery to the pre-COVID-19 economic level while arguing for the need for additional support.
White House Press Secretary Jen Psaki said in a statement that the second quarter GDP growth rate is remarkable evidence of economic revitalization progress, but emphasized, "There is still much work to be done to recover a better economy, and we cannot be complacent in a situation where many Americans face the pressure of economic uncertainty."
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