US economy shrinks in quarter, worst may be yet to come

Standing left to right – Mr. Dinesh Jebamani (Chief Manager Liability Product Management and New Age Media – Seylan Bank), Mr.Sudesh Peiris (Senior Manager – Digital Banking Channels – Seylan Bank), Ms. S.Senevirathne (Representative of the Revenue Department – Western Province), Mr. Tilan Wijeyesekera (Deputy General Manager – Retail Banking – Seylan Bank) and Mr. Malik Wickremanayaka (Deputy General Manager – Operations – Seylan Bank)

WASHINGTON, October 30, 2008 (AFP) – The US economy contracted at a 0.3 percent pace in the third quarter as a global credit crunch prompted consumers and businesses to retrench, government data showed Thursday. The drop in gross domestic product (GDP) was the first negative figure since the fourth quarter of 2007, the Commerce Department reported in the first of three estimates on overall economic output.

Some analysts said the drop could be just the start of a deep and painful recession in the world’s biggest economy.

“A heftier decline in real GDP is likely in the fourth quarter, which will confirm that the US economy is in recession,” said Dawn Desjardins, economist at RBC Capital Markets.

The decline, not as steep as the 0.5 percent annualized drop expected by private economists, comes amid mounting expectations of a sharp falloff in the US economy amid the worst banking and financial crisis in decades.

The decrease marked a sharp fall from the 2.8 percent growth rate of the second quarter and reflected weaker consumer and business spending and housing activity, offset in part by strong exports and government spending.

With the decline, output was estimated at an annualized 14.