The US economy shrank by 3.5% in 2020, the worst year for growth since 1946, as the coronavirus pandemic brought the country to a shuddering halt.
In the last three months of the year the economy rose by just 1% compared to the previous quarter, according to the Bureau of Economic Analysis – equivalent to an annualized rate of 4%.
The latest figures represent a significant slowdown in the economy. In the previous quarter the economy rose by 7.5%, an annualized rate of 33.4%.
The reversal comes amid rising rates of Covid 19 infections. More than 429,000 people have now died of Covid 19 in the US and 25.6m cases have been confirmed, according to Johns Hopkins university’s coronavirus tracker.
The economic reversal was the first annual contraction for the year since 2009, the depths of the Great Recession, when gross domestic product (GDP), the broadest measure of economic health, shrank by 2.5%.
Last year was also the worst year for economic growth since the year after the second world war, when the economy shrank by 11.6%.
The US economy has bounced back significantly from the early months of the pandemic. GDP collapsed by an annual rate of 32.9% between April and June. The Biden administration has outlined an ambitious economic recovery programme and pledged a significant increase in vaccinations but the coronavirus remains a significant drag on the recovery.
Unemployment has dropped sharply from a record high of 14.7% in April to 6.7% in December but the economy still lost 140,000 jobs in the last month of 2020 and the numbers of people filing for weekly unemployment claims remain over four times as high as they were before the pandemic. Another 847,000 people filed for unemployment last week alone.
Oxford Economics described the US economy as “chilled, but not frozen”. GDP remains 2.5% below its pre-Covid level and Oxford Economics does not foresee it reclaiming its end of 2019 level until the second quarter of the year.
“Against the risk of excessive winter pessimism, we believe in spring optimism. We foresee record-breaking consumer spending growth in 2021 with households benefiting from a watered-down $1.2tn version of Biden’s American Rescue Plan, vaccine diffusion gradually reaching two-thirds of Americans by July and employment accelerating this spring. After a 3.5% contraction in 2020, we foresee the economy expanding around 5.5% in 2021,” the economists said in a note to investors.
