Editorial: Still Strong

May 31 2014, 04:05 IST
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SummaryThough US GDP contracted after 3 years, much of the slowdown looks illusory, weather-related

A contraction of 1 percentage point in US GDP, after three years of positive growth, is enough reason for worry, but the broader numbers suggest no real cause for worry. Given the unusually bad winter, even the first estimates had indicated a sharp slowdown, though the second estimates are a lot worse—the first estimates had suggested a stall-speed, but still positive, growth of 0.1%. Much of the worsening has taken place due to a further cutting of private inventories—while this lowered GDP growth by 0.6 percentage points in the initial estimate of growth, the second estimates puts this negative impact at 1.6 percentage points. Given that the weather hasn’t continued into the second quarter and that there is a bottom to cutting inventory, the overall prognosis is that the US economy will continue to grow, though clearly not at the speed initially estimated.

While that is good news, it is clear the IMF’s global growth estimates are going to go awry since the bulk of the growth stimulus was to come from the US, given the slowing in the developed markets. That means a slowing in global trade—US exports growth was down from 9.5% in Q4 2013 to -6% in Q1 2014—which is not good news for countries like India. The Fed statement next week will provide a clearer view of things; chances are, however, the Fed will not slow down its taper, suggesting the Fed is convinced the economy is on a recovery path.

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