The US economy is under pressure due to high inflation and supply chain constraints. While the Federal Reserve earlier this week hiked the interest by 75 basis points, for a second time in a row, to tame inflation, the data released yesterday showed that the US economy shrank from April through June for a second straight quarter, contracting at a 0.9% annual pace. This has raised fears of a recession.
According to Zee Business Managing Editor Anil Singhvi, America has slipped into recession as per data but the government and Fed are not ready to accept it. “Technically, it is said that if America’s GDP growth data remains in the negative territory for two quarters, then there is a recession. GDP falls when you don’t grow… it is an indication that all is not well. The year 2020 was an exception due to Covid. But whenever this has happened, America has slipped into recession,” he said.
“There are two things here with regard to the recession – the recession here is not only in the market but also in the mind. There are typical indications of an economy slipping into recession – when there is no job for common people, inflation is high, people facing difficulty in managing their finances, experienced people are sitting idle, companies are not in the mood for expansion… this is a ground level recession,” the market guru said.
“On the economy level, the recession is when companies default, loan repayment failure is high, liquidity is low in the system. But there is no such indication,” he said and sought to mention America’s ‘great resignation’ drive to attest his argument.
“America’s market has slipped into recession technically, not practically,” Anil Singhvi said, adding that there is a difference between a recession and an economic slowdown.
क्या अमेरिका में मंदी आई है
अमेरिकी बाजार में कल तेजी के पीछे क्या वजह?
आज बाजार में कैसे करें ट्रेड?
— Zee Business (@ZeeBusiness) July 29, 2022
Notably, US President Joe Biden and top officials of the government have dismissed fears of the country’s economy sinking into a recession as doubling down of the GDP growth rates in two successive quarters at around 0.9 per cent did not mean recession as unemployment rate was below 4 per cent, house finances were stable and there was consumer spending. They have argued that inventories have stockpiled and consumers have restrained purchases.
This is the first time in four decades that America’seconomic growth is negative and inflation is approaching double digits. In the recessions of 1991, 2001, 2008 and 2020, economic growth was negative, but inflation was generally in the 2 per cent to 3 per cent range or less.