Fears over the health of the global economy intensified yesterday after an unexpected slump in output in the United States – leaving the world’s biggest economy close to recession.
In a report casting gloom over the outlook worldwide, the Commerce Department said gross domestic product fell at an annualised rate of 1.4 per cent in the first quarter of the year.
That was the first dip in nearly two years and followed growth of 6.9 per cent in the final quarter of last year. It left the US on the brink of recession – two quarters of contraction in a row.
However, the Federal Reserve is still expected to raise interest rates by 0.5 percentage points next week as it battles to control inflation.
Inflation in the US is at a 40-year high of 8.5 per cent and while trade was weak in the first quarter, domestic demand remained strong.
‘The report signals the start of more moderate growth this year and next, largely in response to higher interest rates,’ said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ‘The Fed has little choice but to hike aggressively in May to corral inflation.’