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Premarket: Incredible shrinking GDP Add to ...

The good news? The U.S. economy shrank far less than expected in the fourth quarter, with gross domestic product contracting by 3.8 per cent. Economists had feared a far sharper contraction of 5.5 per cent.

The bad news? No one is celebrating, largely because the better-than-expected figure was due largely to a large jump in inventories - which does not bode well for economic growth in the current quarter.

"It makes us more bearish for the first quarter because this rise has to reverse in some size," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "In short, we are not comforted."

On Friday morning, U.S. stock index futures were slightly lower with about 40 minutes before markets open, suggesting that stocks will dip at the start of trading. Futures for the Dow Jones industrial average fell 26 points, to 8086. Futures for the broader S&P 500 fell 3 points, to 840.

In Europe, the U.K.'s FTSE 100 was down 1 per cent and Germany's DAX index was down 1.8 per cent in afternoon trading. In Asia, Japan's Nikkei 225 fell 3.1 per cent in overnight trading.

In Canada, the economy contracted by 0.7 per cent in November, considerably worse than the 0.4 per cent decline that economists had been expecting.

"The November numbers set up a very weak backdrop for the fourth quarter GDP report," said Charmaine Buskas, senior economics strategist at TD Securities. For its part, the Bank of Canada believes that first quarter GDP will plunge 4.8 per cent.

 

 

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