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News Article

US GDP Records Sharpest Drop Since 2008

By Ricardo Guzman | Wed, 04/29/2020 - 17:17

US GDP plunged 4.8 percent in 1Q20 according to government results released today, providing the first glimpse on the real impact of the COVID-19 pandemic on the US economy. This marked the first negative GDP growth recorded in the US since the 1.1 percent decline in 1Q14 and the sharpest drop since the 8.4 percent plunge in 4Q08 following the global crisis. Economist surveyed by Dow Jones had expected a 3.5 percent contraction.

Decreased personal consumption expenditures and non-residential investments reflect that both US consumers and businesses are pulling back spending, according to the Bureau of Economic Analysis (BEA). The drop seen in consumption was also broader than expected, reflecting the lockdowns’ sharp economic impact. While the impact of these results on Mexico’s projections is yet to be seen, optimism is present among USMCA trade partners following the reactivation plan for production activities, which will put an end to COVID-19’s cease in operations.

USMCA’s enforcement on July 1 will allow a faster recovery and will boost the North American economy, according to analysts quoted by El Financiero. The agreement will provide legal certainty for the development of all three nations, highlighted José Luis de la Cruz, Head of the Institute for Industrial Development and Economic Growth (IDIC). “It will help to reactivate productive chains. Let’s see how they agree on the reactivation. From there, investment and trade will begin to flow,” de la Cruz said.

Grupo Financiero Monex reported that USMCA’s ratification is a positive sign since it ends months of uncertainty. “The sectors that could more rapidly implement measures to comply with the new agreement will be automotive, machinery and technology equipment,” according to Monex.

Despite good news, the global landscape is still driven by uncertainty on how long shutdowns will last, chiefly in the US. Regarding this, OECD Chief of Staff and Sherpa to the G20 Gabriela Ramos said that every month of confinement has caused the world GDP to contract 2 percent. During a discussion table organized by CCE, Ramos noted that among the most affected industries are tourism, entertainment, transport and aviation.

At the same forum, former US Ambassador to Mexico, Anthony Wayne warned of the need to protect supply chains among regional partners. “The US and Mexico must also establish mechanisms to address these issues on a regular basis and avoid major problems in these vital supply chains,” Wayne said.

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Ricardo Guzman Ricardo Guzman Editor