GDP figures reveal UK and US are slowing but neither slipping into recession
The US and UK economies are officially growing at their slowest rates in years, although neither have officially slipped into recession, according to GDP figures released at the end of July.
The US economy posted an annualised growth rate of 0.7% in the second quarter, compared to a restated figure of 1.3% for the first quarter. Analysts were expecting the figure to be nearer 1%, but the markets reacted with relative indifference to the shortfall. The UK economy grew at an annualised rate of 0.3% in the second quarter and annual growth slowed to 2.1% year on year, figures broadly in line with analyst expectations.
While both economies posting positive growth implies that neither country is sliding into recession, the weakness of the growth is indicative of the economic malaise sweeping the globe.
The US Commerce Department has also revised down GDP growth estimates for the latter part of 1990s. Growth for the period from 1997 to 2000 was revised down from 4.5% pa to 4.2% and the GDP growth estimate of 5% for 2000 was revised to 4.1%.
Tony Dolphin, director of global economics at Hendersons, said: 'The headline growth number was pretty close to market expectations. The real shock in the numbers was the revision of last year's growth figures. It makes the economic miracle of the second half of the 1990s look a lot less miraculous.'
More worryingly for the US, consumer spending, which had been one of the few bedrocks of the economy over the past few months has started to slip. Growth in gross domestic purchases contracted from 2.7% in the first quarter to 1.5%, while personal consumption also fell by nearly half, down from 3.7% in the first quarter to 1.7% in the second.
Dolphin said as long as consumer spending remains around the 2% mark, it should be adequate to keep the economy out of recession until the manufacturing cycle improves and positive GDP growth can once more be posted.
He added that NAPM figures, to be released early this month, will be more eagerly anticipated by the market, as they could go some way to allaying concerns over the fact that manufacturing output is slowing in the US, Japan, Europe and Asia for the first time since 1982.
Kevin Adams, fixed interest investment manager at Credit Suisse, expects the UK economy to further contract in the next quarter, anticipating economic growth to come in at 2% for the year.
He said: 'The economy is slowing but not in recession and will probably slow a little further. The third quarter figures will probably be a little bit weaker. The Treasury says it is expecting economic growth to come in at 2.5% for the year, but it will probably be 2%. The trend is 2.5%-3%, so it will come in slightly sub-trend.'
Growth in the services sector slowed to 0.6% in the second quarter and although the figures for manufacturing output are not released until later this month, they are expected to show further deterioration in the sector, indicative of a two-tier economy.
Adams said the sterling bond markets rallied on a false rumour that the results were going to come in weaker than expected.
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