UK First Quarter GDP Drops 2.4%, Most Since 1958; US GDP Fell 5.5%

Expect to see more headlines like this, worldwide: U.K. First-Quarter GDP Drops 2.4%, Most Since 1958.

The U.K. economy shrank more than previously estimated in the first quarter in the biggest contraction since 1958 as the recession choked industries from construction to services.

Gross domestic product fell 2.4 percent from the final three months of 2008, compared with the prior measurement of a 1.9 percent drop, the Office for National Statistics said today in London. The median prediction in a Bloomberg survey of 28 economists was for a 2.1 percent decline. Construction activity plunged almost three times as much as originally estimated.

Bank of England Governor Mervyn King said last week that Britain’s recovery from recession may turn out to be “a long, hard slog.”

The U.K.’s GDP will probably fall 4.3 percent this year, the Organization for Economic Cooperation and Development said in a June 24 report. That compares with a 4.8 percent drop in the euro area and a 2.8 percent decline in the U.S.

The Bank of England is pumping newly created money into the financial system and keeping its benchmark interest rate at a record low of 0.5 percent to fight the recession.

Still, King said June 24 that problems in the banking system mean the recovery is “uncertain” and policy maker Kate Barker said the same day that Britain’s housing market was “still some way away from normal.

US First Quarter GDP Dropped At 5.5%

Last week the BEA announced the US Gross Domestic Product, for the 1st Quarter 2009.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 5.5 percent in the first quarter of 2009,(that is, from the fourth quarter to the first quarter), according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent.

The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, equipment and software, private inventory investment, nonresidential structures, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, decreased.

The smaller decrease in real GDP in the first quarter than in the fourth primarily reflected an upturn in PCE and a larger decrease in imports that were partly offset by larger decreases in private inventory investment and in nonresidential structures.

The 2.8% GDP contraction estimate for the US looks a little optimistic but there are so many give-away programs and government spending that perhaps they the NBER will be declaring the end of this recession later this year. If so it will be nothing to get excited over.

A double dip will be coming in 2010 or 2011 once the stimulus wears off. Consumers are not about to go on a sustained spending spree anytime soon and consumer spending is 70% of the economy.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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