US economy shrinks in first quarter | Business| Economy and finance news from a German perspective | DW | 29.05.2015
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US economy shrinks in first quarter

The US economy has gone from a growth rate of over 2 percent at the end of 2014 to a slight contraction in the first quarter of this year. A harsh winter and the strong dollar weighed on the figures.

The US economy contracted in the first three months of this year, thanks to a growing trade deficit, the Commerce Department said Friday.

Revised statistics published by the department showed the economy shrank 0.7 percent in the first quarter, in contrast to an earlier forecast of 0.2 percent growth.

While consumer spending, which drives about 70 percent of the economy, grew by only 1.8 percent, trade subtracted 1.9 percentage points from growth - the biggest drag in 30 years. The growing US trade deficit is driven by a strengthening dollar that makes imports cheaper.

But many economists are attributing the slump to one-off issues, including a harsh winter and a West Coast ports dispute that took its toll on trade. Most analysts predict the economy growing at an annual rate of 2 percent to 2.5 percent in the current quarter, with further gains later in the year.

"While the evidence of a second-quarter rebound hasn't been overwhelming, we still think that the outlook for the economy is very encouraging," Paul Ashworth, chief U.S. economist at Capital Economics, said.

But coming after 2.2 percent growth in the last quarter of 2014, the slump has raised questions about the overall strength of the US economy.

The low oil price, which helped boost the economy late last year, could now be felt in drastically reduced drilling activity by energy companies.

The Commerce Department said investment in energy exploration plunged at a rate of 48.6 percent, the biggest drop since the recession of 2009.

The revised figures were broadly in line with analysts' expectations. Stocks opened slightly lower on the news.

sgb / hg (AP, dpa)

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