US recovery splutters fuelling fears of second recession

By Arun Kumar, IANS
Friday, July 30, 2010

WASHINGTON - Fears of another recession in the United States loomed as the government reported slower growth in the second quarter and the International Monetary Fund suggested the country’s financial system remains fragile.

The US economy continued to grow during the second quarter with the gross domestic product (GDP) rising at a slower than expected 2.4 percent annual rate during the three months ended June 30, the Commerce Department said Friday.

Separately, reporting the results of stress tests, IMF said while the US banking system is stable, it remains vulnerable and banks subjected to additional economic stress might need as much as $76 billion in capital.

The sluggish pace of US growth reported by the government was down from the upwardly revised 3.7 percent growth rate in the first quarter, and missed economists’ forecast for a 2.5 percent increase.

Still, the figure marked the fourth straight quarter of growth and gave credence to some economists’ views that the recession that began in December 2007 likely ended at some point in mid-2009, CNN said.

“This solid rate of growth indicates that the process of steady recovery from the recession continues,” said Christina Romer, chair of the White House Council of Economic Advisers, in a statement.

“Nevertheless, faster growth is needed to bring about substantial reductions in unemployment,” she added. “Much work clearly remains to be done before the US economy is fully recovered.”

Revisions to annual GDP rates also released Friday indicated that the economic downturn was worse than the government previously estimated, and the recovery was more slack.

Between the fourth quarter of 2007, when the recession officially began, and the second quarter of 2009, when many economists say it ended, GDP dropped by 4.1 percent, marking the deepest recession since 1947. The government’s prior estimate for the overall decline during the period was 3.7 percent.

“It now appears that the financial crisis may have affected production substantially more quickly than was previously reported or realised at the time,” Romer said.

The IMF report on the US financial system also suggested that because the economic recovery is proceeding slowly, regulators must be especially vigilant in guarding against risks and weak spots.

“Pockets of vulnerabilities linger” as the US recovers from what the IMF called “one of the most devastating financial crises in a century.”

(Arun Kumar can be contacted at arun.kumar@ians.in)

Filed under: Economy

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