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America tips into unofficial recession as global markets hold breath

·2-min read
America tips into unofficial recession as global markets hold breath

The US economy has dived into an unofficial recession threatening to take the world economy down with it.

According to official figures from the commerce department the US economy dipped 0.9 per cent in the three months to June, the second successive quarter the economy has contracted - the official measurement of a recession.

Analysts were understood to have been expecting an increase of 0.5 per cent.

However, the downturn in US fortunes has not yet been officially classified as a recession despite having all the hallmarks of one. The National Bureau of Economic Research (NBER) is the official arbiter of when a recession begins. Although it will be a huge blow for the Biden administration that has been trying every measure to keep the runaway economy under control.

The US government flagged the definition of a recession on its website last week leading to speculation that growth figures would be less than favourable.

In the first three months of the year, the US economy shrank at an annual rate of 1.6 per cent.

In the final quarter of last year the US staged a blistering comeback from the cornonavirus pandemic with a 6.9 per cent annual increase in Gross Domestic Product (GDP ).

The revelation is yet to hit the Dow Jones index of shares that has stayed relatively stable in early trading.

Inflation has hit fuel, food, accommodation and other necessities across the US rising at the fastest pace since 1981 causing a deep cost of living crisis. Prices rose at an annual rate of 9.1 per cent in the year until June.

The latest figures follow yesterday’s announcement that the Federal Reserve would add another three-quarter of a percentage point to its base interest rate to try and tame spiking inflation in the US.

Rob Clarry, investment strategist at wealth manager at Evelyn Partners, said: “After the White House took the unusual step of releasing a blog on its website last week that outlined the definition of a recession, speculation that we would see US GDP fall for a second quarter in a row, resulting in a ‘technical recession’, started to increase.

“Today’s release proved this speculation to be well founded, as the US economy contracted by 0.9% on a quarter-on-quarter (annualised) basis. This was driven by weak readings for investment, government spending, and inventories. However, importantly, consumer spending held up.

“This is arguably the most important indicator of underlying growth, so this can be taken as a positive from a disappointing set of data. In addition, labour markets remain robust providing further support to the economy.”

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