For 2022 as a whole, the International Monetary Fund projects that US GDP growth will slow to 4% in 2022.
The US economy grew at the fastest pace since Ronald Reagan’s presidency last year, recovering resiliently from the short but devastating 2020 coronavirus recession.
The country’s gross domestic product, “the total output of goods and services,” has increased in 2021 by 5.7%. This is the strongest growth in a calendar year since a 7.2% surge in 1984 following an earlier recession. The economy ended the year with solid annual growth of 6.9% from October to December, the Commerce Department reported Thursday.
Under pressure from inflation and still reeling from the number of COVID-19 cases, the economy is expected to continue growing this year, albeit at a slower pace. Many economists have lowered their forecasts for the current quarter from January to March, reflecting the impact of the Omicron variant. For the whole of 2022, the International Monetary Fund predicts that the country’s GDP growth will slow to 4% by 2022.
Many American businesses, especially restaurants, bars, hotels and places of entertainment, continue to come under pressure from the Omicron variant, which has kept millions sheltered in their homes to avoid the crowds. Consumer spending, the main driver of the economy, could be further dampened this year by the end of government support for households, which boosted economic activity in 2020 and 2021 but has largely died out.
Additionally, the Federal Reserve made it clear on Wednesday that it plans to raise interest rates several times this year in a bid to tackle the highest inflation in nearly four decades. These rate hikes will make borrowing more expensive this year and could slow the economy.
From the pandemic recession of 2020, a healthy recovery was expected in 2021. GDP had shrunk 3.4% in 2020, the biggest full-year decline since an 11.6% plunge in 1946 as the country demobilized after World War II. The COVID outbreak in March 2020 had prompted authorities to order closures and businesses to close abruptly or reduce hours. Employers cut 22 million jobs. The economy sank into a deep recession.
But rock-bottom interest rates, huge influxes of government aid “including $1,400 checks to most households”, and eventually the widespread rollout of vaccines revived the economy. Many consumers have regained the confidence and financial means to go out and spend again.
In fact, the resurgence in demand has been so vigorous that it has taken companies by surprise. Many struggled to secure enough supplies and labor to handle a rapid increase in customer orders. With many people now working remotely, the shortage of take-out goods has become particularly acute, from appliances to sporting goods to electronics. And since computer chips are particularly rare, car dealerships were desperate for vehicles.
Factories, ports and freight yards have been overwhelmed and supply chains have become entangled. Inflation started to pick up. Over the past 12 months, consumer prices have risen 7%, the fastest annual inflation since 1982. Food, energy and automobiles were among the items with the most price increases.
At the end of last year, the economy showed signs of slowing down. Retail sales, for example, fell 1.9% in December. And manufacturing slowed in December to an 11-month low, according to the Institute for Supply Management’s manufacturing index.
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