31 Jan 2013

US economy shrinks in fourth quarter

1:43 pm on 31 January 2013

The US economy has unexpectedly contracted at an annualised rate of 0.1% in the fourth quarter of 2012, initial official estimates indicate.

If confirmed, it would be the first contraction logged by the US economy since the 2009 global recession, the BBC reports.

The world's largest economy grew 3.1% in July to September.

The fourth quarter period was dominated by the "fiscal cliff" - the spending cuts and tax rises that had been due to come into force from 1 January.

These were avoided by a last-minute deal between the Republican-dominated Congress and the White House.

However, economists warned at the time that fears of an abrupt cut in government spending were undermining business and consumer confidence.

Part of the deal included tax rises for the highest-earning Americans and, more significantly for the economy, the expiry of a payroll tax holiday for all US employees.

The latter is widely expected by economists to further weigh on growth during the current quarter.