COVID-19-Induced Consumption Plunge Leads to Worst Economic Report for US and Germany... V-Shaped Recovery Hopes Dashed

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The contraction in consumption due to the COVID-19 pandemic has significantly impacted the sharp decline in real Gross Domestic Product (GDP) in the second quarter among major countries, including the United States. As movement restrictions were implemented, consumption was hit hard, and the soaring unemployment rate led to a vicious cycle of further consumption decline. Recently, concerns over the resurgence of COVID-19 have grown, diminishing expectations of a 'V-shaped rebound' in the third quarter.

On the 30th (local time), the White House posted data from the Bureau of Economic Analysis (BEA) on its website, revealing that the contribution of personal consumption to real GDP growth in the second quarter (April to June) was -25.05 percentage points. Earlier, the U.S. Department of Commerce announced that the annualized real GDP growth rate for the U.S. in the second quarter was -32.9%, the worst since statistics began in 1947, with a significant portion of the GDP decline attributed to consumption. This was largely due to lockdown measures and social distancing implemented to curb the spread of COVID-19 during this period. The contribution of investment, including both domestic and foreign, also fell to -9.36 percentage points. However, the contributions from government spending and net exports were positive.

The situation is similar in other countries. On the same day, Germany reported that its second-quarter GDP fell by 10.1% compared to the previous quarter, marking the worst decline since records began in 1970. This was due to a historic low in goods and services exports and imports, along with a significant drop in household consumption expenditure during the second quarter. The Eurozone (19 countries using the euro) GDP is scheduled to be announced on the 31st, with experts forecasting a decline of over 12%. Among Latin American countries where the COVID-19 spread started later, Mexico's GDP also fell by 17.3% in the second quarter, the lowest since 1993.

Experts are leaning towards the view that a V-shaped rebound in the third quarter is unlikely. Although the U.S. and German governments expect economic growth of 17.7% and 3% respectively in the third quarter, economic activities such as consumption and investment are likely to remain subdued for the time being due to increased uncertainty from the resurgence of COVID-19.

In particular, the persistently high unemployment rate is critical. When income decreases, consumption recovery becomes difficult. Germany's unemployment rate this month remained at a high level of 6.4%, unchanged from the previous month, and Europe's unemployment rate was 7.8% last month, the highest since early last year. The U.S. Department of Labor reported that weekly unemployment insurance claims last week rose for the second consecutive week to 1,434,000. While the U.S. Congress is discussing new stimulus measures between Republicans and Democrats, negotiations are facing difficulties, raising the possibility that unemployment benefits support may end.

Jay Bryson, Chief Economist at Wells Fargo, said, "If the labor market remains in its current state, it will have a significant impact on real personal consumption by the end of this year," adding, "The outlook at this point is very bleak."

This content was produced with the assistance of AI translation services.