The US GDP dropped at a 5% rate in the first quarter according to the Commerce Department. A worse decline is yet to come due to the coronavirus pandemic.
The Commerce Department explained that the decline in the gross domestic product, the final amount of goods and services, in the January-March quarter remained the same from the estimate made a month ago.
That was considered the hardest quarterly fall since an 8.4% decline in the fourth quarter of 2008 during the peak of the financial crisis.
The first quarter decline of the US GDP was caused by two weeks of shutdowns imposed in many parts of the country to curb the spread of the coronavirus.
Economists are predicting a much bigger GDP decline of around 30% for the current April-June period.
“In deciding whether to identify a recession, the committee weighs the depth of the contraction, its duration and whether economic activity declined broadly across the economy,” the NEBR said.
According to the organization, the “unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.”
Cecilia Rouse, the dean of the Woodrow Wilson School of Public and International Affairs at Princeton University, finds the current economic situation a “very unusual circumstance that we find ourselves in.”
“Covid-19 has already exacted an immense impact on the economy,” she said.
Economists agree that the factors brewing this economic recession the factors, such as how fast it hit and who it is affecting, are different from previous economic recessions and may end with a different situation.
No full lockdowns
Despite the rising cases of coronavirus in the US, analysts believe there will no longer be full lockdowns.
As different parts of the world witness new outbreaks, analysts claim countries are unlikely to impose restrictions that will completely halt economic activities.
Suresh Tantia, senior investment strategist at Credit Suisse’s APAC CIO office, explained that the situation is unlikely to return to its condition in March. This was when the pace of virus cases began to spread in the US and Europe, following the emergence in China last December.
“The second wave of virus is a concern for investors… but I think the key difference is that unlike last time in March, this time it’s highly unlikely that we would see a shutdown of the global economy,” he said.
“If you look at the March selloff, the reason why markets sold off was not because of the virus concerns, it was mostly because the global economy shut down,” Tantia, speaking to CNBC, noted.
“It’s a concern for the markets, but as long as we don’t see a repeat of March… I think markets will look through this and focus more on recovery over the next few quarters.”
The NBC News Count showed that the US recorded its highest number of cases in a single day on Wednesday, with 45,557 new cases at the end of the day. Meanwhile, California reported over 7,000 cases since Tuesday, experiencing a 69% increase in two days. Florida had a record number of new cases as well. These two states are considered the largest economies in the US.