US economy contracts again in Q2
Washinton, US - The US economy contracted for a second straight quarter between April and June, according to official data, adding fuel to recession fears and creating a headache for President Joe Biden ahead of midterm elections.
Gross domestic product declined at an annual rate of 0.9 per cent in the second quarter, following a bigger drop in the first three months of the year, according to the Commerce Department.
While not the official definition, two quarters of negative growth is commonly viewed as a strong signal that a recession is underway, and a downturn in the world's largest economy would have global consequences – as well as domestic political costs.
Biden insisted that the US economy is "on the right path" despite the slowdown, touting the strong labor market.
"That doesn't sound like a recession to me," he said in remarks at the White House, noting unemployment at near record lows and more than a million jobs created in the latest quarter.
But his critics are sure to seize on the report as proof of the veteran Democrat's mismanagement. "It's no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation," Biden said in a statement shortly after the GDP report was released.
"But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure," he said.
After a 1.6 per cent decline in the first three months of the year, the report said the slowdown in the latest quarter was largely due to drops in government spending at all levels, in private investment on goods including autos, and on residential buildings, despite an increase in exports.
But personal consumption expenditures (PCE) continued to increase, though at a slower rate than the prior quarter, the data showed.
Still, American families continue to feel the bite from skyhigh inflation, as a result of supply chain snarls due to Covid19 lockdowns, as well as the fallout from Russia's war in Ukraine, which has sent food and fuel prices soaring.
Consumer prices topped nine per cent in June, the highest in more than four decades, and the GDP data showed another key inflation measure, the PCE price index, rose a still-high 7.1 per cent in the latest three months, the same as in the JanuaryMarch period.
The US central bank has been raising interest rates aggressively to try to cool the economy and tamp down price pressures.
Brussels, Belgium - Europe's economy is proving surprisingly resilient against soaring energy and food prices, data showed, as tourism boosted France and Spain but export powerhouse Germany stalled, keeping recession fears alive.
The EU agency Eurostat said gross domestic product in the 19-country eurozone grew by 0.7 per cent in the second quarter, far stronger than expected by analysts. The EU as whole grew by 0.6 per cent.
The war in Ukraine has seen the price of natural gas and grocery items skyrocket, and Eurostat's data also showed that inflation in the single-currency area hit yet another new record of 8.9 per cent in July.
Europe's industrial powerhouse Germany continued to be the worst affected by the war, which added to the country's woes from the continued Covid restrictions in China, a crucial export market.
Stagnant German growth in the second quarter has led analysts across the board to predict a recession that would spill over to the continent as a whole.
Russia has sharply reduced its gas flows to Germany, raising the fear that reserves will be very low this winter and force some level of rationing that would be devastating for the economy.
The International Monetary Fund has warned that Germany, which serves as the engine of the wider European economy, is the most at risk against the war in Ukraine.
Countries reliant on tourism showed better-than-expected resilience, with growth in France and Spain gaining strength as tourists took advantage of unrestricted travel to the world's top destinations.
The economies of France and Spain expanded from the previous quarters by 0.5 per cent and 1.1 per cent respectively. Italy, a major source of concern for analysts, also defied expectations by growing one per cent in the second quarter.
The European Central Bank has followed a similar course to that of the US Federal Reserve and last week raised rates for the first time since 2011.