Economic Slowdown: The US Economy Appears To Be Slowing, With GDP Growth Revised Down To 2.7% In The Fourth Quarter

The US government announced on Thursday that the country's real gross domestic product (GDP) grew at an annual rate of 2.7% from October to December. Despite the volatile geo-economic conditions around the world caused by several conflicts, real GDP increased at a rate of 3.2% in the third quarter.

Previously, the fourth-quarter GDP growth estimate was set at 2.9%, but it has to be revised down by 0.2% because global GDP is shrinking due to interest rate hikes on the dollar.

While the dollar's interest rate rose, other currencies fell, which is why countries prefer to conduct bilateral transactions in the local currency rather than the dollar. 

This is exactly what is happening in the world right now, as the US Federal Reserve raises interest rates on the dollar.

The most prominent example is India and its currency, the Rupee: the Indian government is reducing its reliance on the dollar by promoting and digitizing its currency through bilateral trade with nearly 35 countries. However, India has a long way to go because the US dollar is the world's strongest reserve currency and is widely used by countries to promote any type of bilateral trade. As a result, the dollar's promotion is automatic, and competition to outperform it is almost non-existent. 

The latest report also reduced the government's fourth-quarter consumer spending growth estimate from 2.1% to 1.4%. This is the worst showing since the first quarter of last year. The momentum in economic activity grew at the end of 2022, but it has slowed since the start of 2023 because business spending has slowed in the fourth quarter. 

Although the rate of GDP growth has slowed slightly, there is good news in terms of employment data. The US economy added 517,000 jobs in January, far exceeding economists' expectations for a slowdown, and the unemployment rate fell to 3.4%, a level not seen since May 1969.

Some of January's surprisingly strong economic gains were most likely due to much warmer-than-usual weather. Few economists anticipate similarly large increases in hiring or spending in the coming months. Most analysts believe growth will slow to around 2% annualized in the current January-March quarter.

No relief for the Interest rate:  

The US Federal Reserve is still unwilling to lower interest rates, which is being used as a weapon to combat the chilling bite of inflation. 

To combat still-high inflation, the Federal Reserve is expected to raise its benchmark interest rate over the next few months and keep it at a peak through the end of the year. 

The minutes of the Fed's most recent policy meeting revealed that all 19 Fed officials supported raising rates at the next two meetings.

A strong dollar is good for some and bad for some, especially countries using the dollar as a transaction currency. 

Because the dollar has risen in value over the last year and continues to rise this year, American consumers have benefited from lower import prices and less expensive foreign travel. At the same time, American businesses that export or rely heavily on global markets for the majority of their sales have suffered. 

Also, the higher borrowing costs make mortgages, auto loans, and credit card borrowing more expensive. Higher interest rates may discourage consumers and businesses from spending, hiring, and investing, potentially leading to a recession. 

Therefore, Federal Reserve has to consider every avenue before considering further interest rate hikes. 

Housing and rent are also major issues for the US economy. 

This is also dragging the rate down. According to new real estate data, the value of the US housing market fell $2.3 trillion between June and December last year, the steepest drop in 15 years as a percentage of the overall sector. 

Total home values fell to $45.3 trillion at the end of 2022, a 4.9% decrease from the same period the previous year. Housing investment has dropped by nearly 26%, owing to higher borrowing costs. US Housing Market Posts $2.3 Trillion Drop, Biggest Since 2008. 

Year-on-year inflation has slowed since reaching 9.1% in June, slowing to 6.4% in January. On a monthly basis, however, price gains accelerated from December to January, raising the possibility that the Fed will raise its benchmark rate sooner than previously indicated. 

The government also revised its estimates of Americans' fourth-quarter earnings in Thursday's GDP report. Adjusted for inflation, after-tax income increased by 4.8%, a much larger increase than the previous 3.3% estimate.

The world may have lasting peace in the near future with the end of all conflicts around the world, only then will we see homogeneous economic growth, which is nearly impossible to achieve.