US economy shrinks by 6.1%

Recession continues to bite as US exports plunge to 40-year low.

    Millions have been left unemployed as the US
    recession deepens [GALLO/GETTY]

    The Commerce Department said the government's $787bn stimulus package, approved in February, had had little impact on the first-quarter's GDP.

    "The recession was bad in the first quarter but won't be as bad going forward."

    John Silvia, chief economist at Wachovia bank

    Part of the US stimulus package is designed to bolster state and local and government spending, which fell at a 3.9 per cent rate in the first quarter, the largest decline since the second quarter of 1981.

    Budget passed

    However, in better news for the administration of Barack Obama, the US president, both the US Senate and the House of Representatives passed a revised proposed $3.4trn budget on Wednesday.

    Both the House and the Senate had already approved their own separate versions and Wednesday's draft was a compromise between the two.

    However votes were split along party lines, with Republicans in both the House and Senate refusing to back the draft budget because they say it raises taxes.

    The US is facing its worst economic crisis since the 1930s following the subprime mortgage scandal, when many US citizens took out high interest loans they were unable to repay, sparking a wave of mortgage defaults, foreclosures and bank collapses.

    More than five million people have also lost their jobs in the US since the recession began in December in 2007.

    And in the last three months of 2008, the US economy shrank by 6.3 per cent, the worst fall in 25 years.

    Recovery hopes

    However the report also said that consumer spending had risen by 2.2 per cent, the largest rise for two years.

    And some analysts remained confident that the economy would grow again in the final quarter of this year.

    "The recession was bad in the first quarter but won't be as bad going forward," said John Silvia, chief economist at Wachovia, a US bank.

    "I don't think this lessens the expected pattern that the economy will be entering a recovery by the end of this year."

    The recent outbreak of the swine flu, which started out in Mexico and has spread to the US and elsewhere, could also impact on the economy if trade declines and consumers cut spending.

    SOURCE: Agencies


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