US economy sees strongest growth since 1984 as it bounces back after COVID-19 downturn

US

The US grew at its strongest pace since 1984 last year as it bounced back from 2020’s pandemic-driven downturn, official figures show.

GDP in the world’s biggest economy expanded by 5.7% in 2021 after shrinking by 3.4% the year before, according to America’s bureau of economic analysis.

It has not enjoyed such strong one-year growth since when Ronald Reagan was in office and Beverly Hills Cop was on at the cinema nearly four decades ago.

A homeless man sits alone in a nearly empty Times Square in Manhattan during the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., April 7, 2020
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The US economy shrank in 2020

The strength of the recovery picked up in the final quarter of 2021 – to an annualised pace of 6.9% – as firms stocked up to meet high demand.

But economists expect it to have slowed at the start of this year reflecting the impact of the Omicron variant.

Households will also not benefit from pandemic-era government cash boosts this year while the Federal Reserve has signalled interest rates starting to rise from March, which could also cool growth.

For 2021 as a whole, consumer spending bounced by 7.9% and there was a 9.5% increase in private investment.

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But there have already been signs of the brakes being applied to the recovery, with retail sales dipping by 1.9% in December.

The GDP figures come a day after Fed chair Jerome Powell said that “the economy no longer needs sustained high levels of monetary policy support” and the central bank said a rate rise would soon be appropriate.

Federal Reserve Board Chair Jerome Powell speaks during his re-nominations hearing of the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill, in Washington, U.S., January 11, 2022.
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Fed chair Jerome Powell said the economy no longer needs sustained high levels of monetary support

America has recovered more quickly than other countries from the damage inflicted to GDP by COVID-19 and had already bounced back to pre-pandemic levels by the middle of last year.

But with supply strains as demand returns and wages climbing, official figures also point to another economic indicator – inflation – at a near four-decade high.

Consumer prices were up 7% year-on-year in December, the highest since 1982.

The inflation surge is likely to spur the Fed into action, with Mr Powell warning that the outlook for prices had even become “just a bit worse” recently.

Markets are now betting that the US central bank will hike rates four times this year.

The International Monetary Fund predicts that economic growth will slow to 4% for 2022.

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