U.S. GDP Collapse Puts It on Course for Worst of Top 10 Economies

U.S. gross domestic product plunged by more than 30 percent in the second quarter of this year, putting the country on track to perform poorly compared to other top ten economies hit by the global coronavirus pandemic.

Data released by the Bureau of Economic Analysis on Thursday showed that U.S. GDP contraction hit an annual rate of 32.9 percent in the three months between April and June, a huge spike on the economy's 5 percent fall in the first quarter of this year.

The bureau said the record second quarter downturn reflected the economic shock caused by COVID-19 and restricted business spending amid nationwide lockdowns.

"The decline in second quarter GDP reflected the response to COVID-19, as 'stay-at-home' orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses," the BEA said in a release.

"This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending."

It added that the sharp decrease in real GDP also mirrored a decline in consumer spending despite the payment of $1,200 stimulus checks aimed at buoying the U.S. economy.

The New York Stock Exchange
The New York Stock Exchange on July 13, 2020 at Wall Street in New York City. Johannes Eisele/AFP via Getty Images

Ahead of the announcement, European stocks took a tumble in expectation of America's latest GDP figures spelling bad news for the international economy.

The new GDP figures published on Thursday revealed the extent of the damage wreaked on the American economy by the novel coronavirus pandemic, lockdown measures aiding public health, and the related spike in unemployment.

Reacting to the second quarter figures, Josh Lipsky, the director of the Atlantic Council's global business and economics program, said in a statement that the numbers should be a "wake-up call" to Congress.

"For the first time in seven decades the U.S. economy contracted by double digits. These numbers represent millions of jobs lost and lives changed forever," he said. "The American economy has never had to climb out of such a deep hole and it will be impossible to do so without immediate help."

The Economic Policy Institute's Director of Research Josh Bivens said an "utterly enormous scale of recovery" was needed to return to U.S. economy to a healthy position.

"To put it simply, it could take years of historically fast GDP growth just to return the economy to the pre-COVID-19 status quo," he added in a statement.

When compared to the performances of other top ten economies, the latest U.S. GDP figures appeared to be particularly stark.

After witnessing its GDP slump by 6.8 percent in the first quarter of this year, the Chinese economy reported a 3.2 percent rebound in the three months covering April to June. The International Monetary Fund has also predicted that China's GDP will have risen by 1 percent when the year ends.

By contrast, the organization estimated in June that the U.S. economy would take an 8 percent hit by the end of 2020.

Germany also reported damage to its economic output today, but still fared better than America. The leading European economy's GDP fell by 10.1 percent in the second quarter, making it the largest quarterly decline the country had experienced since 1970—yet still far less severe than the 32.9 percent contraction witnessed in the U.S.

The U.K. has not released its full second quarter GDP figures, but Office of National Statistics data showed the country's economy contracted by a record 20 percent in April, before growing by 1.8 percent in May.

Forecasts from top ten economies yet to release their second GDP numbers have predicted similar declines are on the horizon.

The Bank of Japan estimates that the Japanese economy will contract by 4.7 percent in fiscal 2020, according to the Nikkei financial newspaper. Its GDP fell by 2.2 percent in the first three months of the year.

Across the Pacific, the Bank of Canada predicts that the country's economy will take a 7.1 percent hit throughout 2020, following an annualized 8.2 percent slump in the first quarter of this year.

Over in Europe, Italy's central bank estimated that its second quarter fell by roughly 10 percent, according to Reuters. France's official economic statistics agency INSEE forecast a larger quarterly contraction of 17 percent in June.

The emerging markets of Brazil and India have also yet to report their actual second quarter GDP figures, but the Brazilian government is predicting a contraction of 4.7 percent this year, and the IMF is forecasting India to be hit by a similar 4.5 percent downturn.