• Thomas Parker

U.S. economy in Q4 grew at 2.1% rate as stocks continue plunge

Updated: Mar 6, 2020

The Commerce Department confirmed on Thursday that the U.S. economy grew at an annualized rate of 2.1% in the fourth quarter of 2019, but fears related to the coronavirus have sent stocks downward and caused economists to downgrade forecasts for the start of 2020.

Excluding trade, inventories and government spending, the economy grew at a 1.3% rate in the fourth quarter, the slowest in four years. Business investment fell at a 2.3% annual rate in the fourth quarter, greater than previously reported. The decline marks the third straight quarter of falling business investment, the longest streak since 2009.

The DOW Jones Industrial Average dropped again on Thursday morning, shedding over 800 points within the first hour of trading. The losses this week are the worst in one week since 2008 and come just a week after stocks had hit record highs.

President Trump held an address on the virus yesterday and named Vice President Pence as the head of his coronavirus task force in an effort to calm markets and allay fears.

Economists are warning that if the virus turns into a global pandemic, the effects could throw the global economy into recession.

Diane Swonk, chief economist at Grant Thornton, said the chance of two interest rate cuts this year by the Federal Reserve “has gone up dramatically” because of the virus.

Other economists and analysts believe that the global economy was not robust before virus fears gripped markets. While most data showed that the economy was not in serious trouble, there were signs of problems, including manufacturing activity declining in 2019 and consumer spending halting in January.

“The global economy was already very weak because of the trade war, and it would not take much to shove it on its heels,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi said his baseline forecast, which assumes that the virus remains largely contained in China and dissipates by spring, projects global growth will slow to 2.4% in 2020--0.4% lower than without impacts from the virus.

Zandi also projects that U.S. growth will slow to 1.3% in the first quarter of 2020, 0.6% lower because of the virus. His forecast of U.S. growth for the year 2020 is 1.7%, which would be the slowest since 2013.

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