The United States economy is heading toward a recession; this is according to growing concerns from reputable banks and economists in the United States. How will this impact the Namibian economy?
Recession is a term used to signify a slowdown in general economic activities. The most widely used definition of the term recession is two successive quarters of decline in a country's Gross Domestic Product (GDP), a monetary measure of the market value of all the final goods and services produced in a country in a specific time.
The international news agency, Reuters, said that the United States economy unexpectedly contracted in the first quarter. However, domestic demand remained strong as consumer spending showed positive sentiments. A wider trade deficit mostly drove the decline in real GDP as imports surged and a slowdown in the pace of inventory accumulation.
A brief expenditure and factors overview
Consumer spending accounts for more than two-thirds of the United States' economic activity. Between February and March 2022, the United States' economy saw a successive monthly increase in adjusted consumer spending of between 0.2 to 1.1 percent despite rising monthly and annual inflation. The rise in consumer spending in the first quarter of 2022 is subdued and likely to fall as inflation takes centre stage. According to the United States' Bureau of Labour Statistics, annual inflation rose to 8.5 percent in March 2022, the highest level recorded since 1981.
Some of the factors at play for the United States economy entering a recession include a contraction in real GDP, a widening trade deficit, and low levels of unemployment, which stood at a record low of 3.6 percent at the end of April 2022. Others are the interest rate hikes, as the United States Federal Reserve hiked interest rate by 50 basis points in May 2022, from zero to 0.5 percent, the newest target range of 0.75 to 1.00 percent. The persistent inflationary pressures emanating from Covid-related lockdowns in China and Russia's invasion of Ukraine also worsen the situation.