First-Quarter GDP Growth

May 17, 2020

First-quarter national income accounts have now been reported for the United States, China, Euroland, Japan and Great Britain. In China, where the Covid-19 pandemic first surfaced, economic activity suffered more sharply than in the other four economies. Real GDP there plummeted 33.8% at an annualized rate compared to its 4Q19 level. That pummeling caused the year-on-year growth rate to swing from 6.0% in the final quarter of 2019 to -6.8% in the first quarter of this year. Such was the first on-year contraction since 1992 and the largest such drop since 1976, the year Mao Zedong died. Having contained the health emergency sooner than in other countries, China growth rate in the current quarter is likely to leap from the bottom of the pack to the top.

Compared to the U.S., Japanese, and British economies, growth contracted much more sharply in the euro area last quarter. The quarter-on-quarter plunge was 14.4%, and year-on-year growth, which had been 1.0% in the final quarter of last year, deteriorated 4.3 percentage points to -3.2%. The quarterly contractions among Euroland’s four biggest economies, expressed in annualized terms, ranged from 9% in Germany to 17.7% in Italy, 19.4% in Spain and 21.4% in France.

British real GDP slumped 7.7% annualized last quarter. This was the largest quarterly contraction in 45 quarters and result in a 1.6% slide of GDP compared to the first quarter of 2019. All major components of aggregate demand fell.

U.S. real GDP fell 4.8% annualized between the final quarter of 2019 and first quarter of 2020. That was the steepest drop since in 11 years. Personal consumption, non-residential investment, and exports fell 7.6%, 8.6%, and 8.7%, respectively. Imports (-15.3%) fell much more sharply than export, so net foreign demand enhanced GDP growth by 1.3 percentage points. Inventories exerted a growth drag of half a percentage point, and government spending had a minuscule positive influence on the U.S. quarterly growth rate. U.S. GDP was 0.3% greater than its year-earlier level. On a calendar year basis, growth had previously slowed from 2.8% in President Trump’s first year in office to 2.5% in 2018 and 2.3% in 2019.

Japan was the last of this group of economies to report first-quarter GDP growth, which arrived just today. The quarter-on-quarter contraction of 3.4% (annualized) was less pronounced than in Euroland, Great Britain and even the United States. Analysts had been expecting a somewhat bigger Japanese growth contraction just north of 4.0%. The contributions of the major components of Japanese demand to the 3.4% slide of real GDP were each negative: -1.5 percentage points (ppts) from personal consumption, -0.8 ppts from net exports, and -0.3 ppts each  from residential investment, non-residential investments and inventories. Public investment exerted a 0.1 ppt drag, but overall government spending had a neutral effect on growth.

Unlike the other economies, Japan experienced negative growth also in the final quarter of 2019 (-7.3%), so that economy was officially in recession by March 31. First quarter GDP was 2.0% lower than its year-earlier level. By now, halfway into the second quarter, all the economies have been Covid-19 related recession victims. For Japan, Great Britain, Euroland, and the United States, the second quarter is seeing more severe economic conditions this quarter than last.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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