Washington- The US economy ended 2021 with 7% annual growth from October to December, the US government said Thursday, a slight improvement from its forecast as companies ramped up supply replenishments.
Over the whole of 2021, the country’s gross domestic product — the total value of its goods and services — rose 5.7%, the fastest growth in a calendar year since rising 7.2% in 1984 after a deep recession.
But so far this year, the economic outlook has weakened considerably in the face of accelerating inflation, high lending rates, tense financial markets, and the prospect of serious military conflict over Russia’s aggression against Ukraine.
Bottlenecks in supply chains, which have led to shortages of parts and products, are also affecting the business. This year, American households will not get the government stimulus they got last year – money that helped bolster strong consumer spending in 2021.
The International Monetary Fund has estimated that the US economy will see slow growth of 4% this year. But the economy could weaken further if the Federal Reserve’s upcoming rate hikes significantly slow Americans’ borrowing and spending.
The Fed’s ultra-low interest rates supported the rapid expansion that came in the wake of the 2020 pandemic recession. But high inflation forced the Fed to step back, with a series of interest rate increases expected to begin next week.
The Russian invasion of Ukraine – and the very likely decline in global energy markets – also add to the uncertainty surrounding the economic outlook.
Economic growth in the fourth quarter of 2021 was supported by a 33.5% increase in business investment as companies worked to replenish inventories. In fact, inventory replenishment accounted for 70% of fourth-quarter growth.
Also contributed to the updated first-quarter growth estimates for October-December were strong business investment and government and local spending, offsetting slightly weak consumer spending.
For the whole of 2021, consumer spending rose 7.9%, the fastest such growth since 1946. But it slowed to an annual pace of 3.1% in the October-December quarter as a rebound in coronavirus cases has now fizzled, keeping more Americans are at home and away from restaurants, tourist destinations, and entertainment venues.