It seems surprising that European markets can drop over 1% due to USA GDP while Wall Street registered slight gains. This means America completely believes the Fed explanations about hard weather and health care expenditure rise. In this line of thought, the key fact is that the US economy is recovering and will strongly grow this year.
Markets’ reaction usually sets the tone but reality is indisputable: the US’ GDP shrinking has been relevant enough to change 2014 forecasts. Some analysts seem worried about ending the year under 2%, instead of 2.1% mentioned in the latest Fed estimates.
1Q drop is the worst figure since early 2009, when recession was finishing. Consumption data, which affects two thirds of economy, just increased by 1% (vs. 3% expected a month ago). Corporate investment also dropped by 1.2%. Trade balance showed a 8.9% exports reduction while imports just grew by 1.8%.
Preliminary data for 2Q display USA economy just stopped hibernating. Indeed, analysts believe April-June will set a 3.6% yearly growth rhythm.
If so, Wall Street relies on the Fed maintaining its current monetary policy, that is, gradually tapering and a possible interest rates hike well into 2015.