US GDP sees shock contraction in Q4

30 Jan 2013 | 13:40
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The US economy shrunk in the final quarter of 2012, raising fresh questions about the strength of its economic recovery.

The first official reading of US GDP revealed GDP dropped by 0.1% in the final quarter of 2012, its first contraction since 2009.

The reading confounded economists' expectations of a 1.1% rise on the quarter.

Spending on defence fell by the largest amount since 1972, according to the Bureau of Economic Analysis, while a reversal in business inventories knocked 1.3 percentage points off the headline figure.

Other figures suggest a greater resilience, with consumption growth still healthy at an annualised rate of 2.2%, leading some to retain their optimism.

Capital Economics' chief US economist Paul Ashworth described the fall as "the best-looking contraction in US GDP you'll ever see", despite predicting a further weak figure in Q1 2013 due to the expiration of the payroll tax cut.

"Despite the looming fiscal cliff and Superstorm Sandy, consumption growth accelerated to 2.2%, from 1.6%, while business investment increased by 8.4%, more than reversing the 1.8% decline in the third quarter. Residential investment increased by as much as 15.3%," he said.

The initial Q4 figure meant the US economy grew by 2.2% in 2012 as a whole, slightly up on 2011's 1.8% rise.

US equity market futures fell on publication of the release, though the wider effect was muted.

In Europe, the EuroSTOXX 50 extended losses to stand down 0.4% at 2,660. In London the FTSE 100 saw a small gain reverse to stand down 0.1% at 6,330.

Categories: Equities

Topics: Us

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