US second quarter GDP disappoints

The US economy grew less than expected during the second quarter of this year as consumer spending was anaemic amid high prices at the petrol pumps, while first quarter growth was revised down sharply.

The advance estimate of second quarter Gross Domestic Product of 1.3% annualised was well below market expectations of 1.8%, while first quarter growth was revised to a meagre 0.4% increase from a previous initial reading of 1.9%.

Analysts blame the weak figures on consumer spending (which accounts for 70% of GDP) as consumers increased their spending by only 0.1%.

Durable goods spending fell by 4.4% for the quarter, which was only slightly offset by a 0.1% rise in non-durable goods purchases and a 0.8% increase in spending on services.

Meanwhile, durable goods orders for June fell by 2.1%, following a revised 1.9% increase in May and a 2.5% drop in April.

This was the second large drop in three months, raising concerns that the manufacturing sector is running out of steam after leading a moderate recovery over the past two years.

In the eurozone, the first official estimate for inflation showed that inflation unexpectedly fell to 2.5% in July from 2.7% in June.

The drop may dissuade the European Central Bank from raising interest rates in the coming months after increasing rates twice in April.

The ECB is due to meet on Thursday to discuss the matter.

Britain’s economy grew by a weak 0.2% during the second quarter of this year, in line with economists’ expectations.

Although this was a fragile growth number, it still offered a degree of relief as some market participants were concerned that the economy may have contracted in the period.

This article was compiled by Bank of Valletta plc for general information purposes only.