US growth falls off a cliff with big­gest hit since the De­pres­sion

The Daily Telegraph - Business - - Business - By Rus­sell Lynch

THE US suf­fered its big­gest col­lapse in growth since the Great De­pres­sion af­ter Covid-19 dealt a ham­mer blow to the world’s big­gest econ­omy, send­ing mar­kets tum­bling around the world.

The stun­ning 32.9pc an­nu­alised slump be­tween April and June – equiv­a­lent to a quar­terly fall of 9.5pc – is the worst since of­fi­cial records be­gan in 1947 and im­per­ils pres­i­dent Don­ald Trump’s chances of re­main­ing in the White House in Novem­ber. Ac­cord­ing to Deutsche Bank, it is the worst hit to the econ­omy in a sin­gle quarter since a cat­a­strophic 35.4 slump in 1932.

Fears over a pro­longed global re­ces­sion sent the FTSE down 2.3pc, wip­ing £36bn off the value of the UK’s lead­ing blue-chips. Mar­kets in New York, Paris and Frank­furt also suf­fered falls.

The US econ­omy is ex­pected to mount a re­cov­ery in the cur­rent quarter. But a surge in new Covid cases has taken Amer­ica’s death toll above 150,000 and forced sev­eral states to re­verse re­open­ing plans, stalling the eco­nomic fight-back.

There were fur­ther signs of wan­ing mo­men­tum in the lat­est fig­ures on ben­e­fit claims by newly un­em­ployed work­ers, which rose by 1.43m in a sec­ond suc­ces­sive in­crease af­ter 15 weeks of de­cline.

An ad­di­tional 12m Amer­i­cans are un­em­ployed com­pared to be­fore the pan­demic, and Jay Pow­ell, the Fed­eral Re­serve chair­man, has warned of a “slow­ing in the pace of the re­cov­ery”.

Richard Flynn, of bro­ker Charles Sch­wab, said: “With job­less claims at his­tor­i­cally el­e­vated lev­els, it is ev­i­dent the US re­cov­ery may be in for a bumpy ride.” The data capped a dire day for eco­nomic news as Ger­many suf­fered a record 10.1pc slump, while Bel­gium and Aus­tria’s out­put shrank by 12.2pc and 10.7pc re­spec­tively.

The US col­lapse fol­lowed a 5pc fall in the open­ing quarter when the pan­demic pushed the econ­omy into lock­down in March. The slump in con­sumer ac­tiv­ity that fol­lowed – with spend­ing tum­bling at an an­nu­alised pace of 34.6pc – was the big­gest driver of the sec­ond quarter fall.

Con­sumer spend­ing ac­counts for 70pc of the US econ­omy. One of the few ar­eas of ac­tiv­ity to ex­pand was govern­ment spend­ing, re­flect­ing a $2 tril­lion re­lief pack­age ap­proved by Congress.

Talks are stalled over a new Repub­li­can pack­age that aims to slash pay­outs by two-thirds to $200 a week and even­tu­ally re­place them with a ben­e­fit equiv­a­lent to 70pc of work­ers’ pre­vi­ous wages.

ING’s US econ­o­mist James Knight­ley said: “Covid-19 is far from beaten and while there is op­ti­mism about a vac­cine, the tim­ing and its ef­fi­cacy are still un­known.”

Mr Trump is trail­ing Demo­cratic chal­lenger Joe Bi­den by as much as nine points in polls af­ter fum­bling his coun­try’s re­sponse to the cri­sis.

Only one pres­i­dent in 100 years has won re-elec­tion less than a year af­ter a re­ces­sion and Mr Trump floated a de­lay to the poll on Twit­ter, ask­ing if the US should “de­lay the elec­tion un­til peo­ple can prop­erly, se­curely and safely vote?”.

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