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Title: Barack Obama faces new headache as the US economy stumbles
Source:
UK Telegraph
URL Source: http://www.telegraph.co.uk/finance/ ... s-the-US-economy-stumbles.html
Published: Apr 24, 2011
Author: Richard Blackton
Post Date: 2011-04-24 09:16:15 by Sebastian
Keywords: None
Views: 550
Barack Obama faces new headache as the US economy stumbles Expansion in gross domestic product (GDP) is expected to have slowed to 1.8pc in the first quarter of the year from the 3.1pc seen in the final three months of 2010, according to Wall Street economists. Most point out that a combination of higher oil prices, a particularly harsh winter in the US and the earthquake in Japan all proved unexpected constraints on a quarter that in December was forecast to provide further evidence of a strengthening recovery. "Things are not looking that good," said Yelena Shulyatyeva, an economist at BNP Paribas, which is predicting that the US will see growth at 2.5pc this year. "The situation has changed." The consensus for US expansion this year among economists on Wall Street has edged down from above 3pc at the start of the year to 2.9pc, matching last year's figures. The state of the US economy is important for the rest of the world, not only because of its size, but because America is one of the few developed economies that has chosen to focus on growth rather than tackling the deficit. Though the expectations for growth have come down, the majority who track the economy do not expect a repeat of last year when a marked deterioration from spring onwards sparked fears of a double-dip recession. "It is not now the challenge of generating a US private demand recovery," said Dominic Wilson, an economist at Goldman Sachs. "It is that the private demand recovery is more clearly running up against constraints." The biggest headwind for an economy still largely based on consumer spending is the rise in petrol prices, which climbed to the highest level in almost three years last week. Tim Geithner, the US Treasury Secretary, has insisted that the economy is strong enough to withstand the increase – a claim that the peak summer driving season is likely to test. Thursday's release of the GDP figures will come just over a week after the ratings agency, Standard & Poor's, warned the US that its prized 'AAA' credit rating was at risk if it failed to tackle its deficit within two years. Ben Bernanke, the chairman of the Federal Reserve, will be questioned about both at his first ever press conference on Wednesday. However, economists say it is the exit strategy from quantitative easing (QE), which is scheduled to end in June, that investors will be keenest to hear about. "Bernanke hopes he can win broader support [for QE], if not outright approval, by taking his message to the media," said Chris Low, an economist at FTN Financial.
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