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Warehouse workers deal with inventory stacked up to the ceiling at an ABT Electronics Facility in Glenview, Illinois, on Dec 4, 2018. (Photo: REUTERS/Richa Naidu) - 

The US economy notched its strongest growth in nearly four decades in 2021 after the government pumped trillions of dollars in COVID-19 relief, and is seen forging ahead despite headwinds from the pandemic, strained supply chains as well as inflation.

A surge in gross domestic product in the fourth quarter as businesses replenished depleted inventories to meet strong demand for goods was the final push. Last year's robust growth reported by the Commerce Department on Thursday (Jan 27) supports the Federal Reserve's pivot towards raising interest rates in March.

Fed Chair Jerome Powell told reporters on Wednesday after a two-day policy meeting that "the economy no longer needs sustained high levels of monetary policy support", and that "it will soon be appropriate to raise" rates.

"While Omicron will lead to weaker growth in the first quarter, activity is expected to rebound nicely once the latest pandemic wave abates and supply-chain glitches ease," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

"The Fed will need to be 'humble and nimble' as it navigates underlying economic strength, worsening labor shortages, and stubbornly high inflation."

The economy grew 5.7 per cent in 2021, the strongest since 1984, as the government provided nearly US$6 trillion in pandemic relief. It contracted 3.4 per cent in 2020, the biggest drop in 74 years.

It was the first time in 20 years that the US economy grew faster than the Chinese economy.

President Joe Biden quickly took credit for the stunning performance, which he said was "no accident".

Biden's popularity is falling amid a stalled domestic economic agenda after Congress failed to pass his signature US$1.75 trillion Build Back Better legislation.

"We are finally building an American economy for the 21st Century, and I urge Congress to continue this momentum by passing legislation to make America more competitive, bolster our supply chains, strengthen our manufacturing and innovation, invest in our families and clean energy, and lower kitchen table costs," Biden said in a statement.

Gross domestic product increased at a 6.9 per cent annualized rate in the fourth quarter, the government said in its advance GDP estimate. That followed a 2.3 per cent growth pace in the third quarter.

Growth is 3.1 per cent above its pre-pandemic level.

Economists polled by Reuters had forecast GDP growth rising at a 5.5 per cent rate.

The momentum, however, faded by December amid an onslaught of COVID-19 infections, fueled by the Omicron variant, which contributed to undercutting spending as well as disrupting activity at factories and services businesses. But there are, signs that infections have peaked, which could lead to increased demand for services by spring.

Inventory investment increased at a US$173.5 billion rate, contributing 4.90 percentage points to GDP growth, the most since the third quarter of 2020. Businesses had been drawing down inventories since the first quarter of 2021.

Spending shifted during the pandemic to goods from services, a demand boom that pressured supply chains. Excluding inventories, GDP grew at a moderate 1.9 per cent rate.

Stocks on Wall Street were trading higher. The dollar gained versus a basket of currencies. US Treasury yields fell.

Some economists viewed the modest growth in the so-called final sales as a sign that the economy was set to slow down significantly, especially if not all the inventory accumulation was planned. They also worried that rate hikes as well as reduced government aid, especially the loss of the childcare tax credit, could hurt demand.

So far inventory-to-sales ratios remain low by historical standards.

"Fed policymakers will have to be extremely careful at threading the needle when they raise interest rates as every other Federal Reserve in history has raised interest rates too high and brought the economy crashing back down," said Christopher Rupkey, chief economist at FWDBONDS in New York.

Growth last quarter was also lifted by a jump in consumer spending in October before retreating considerably as Omicron raged. Consumer spending, which accounts for more than two-thirds of economic activity, grew at a 3.3 per cent rate after rising at a 2 per cent pace in the third quarter.

A decrease in purchases of motor vehicles, which are scarce because of a global chip shortage, was offset by increases in spending on healthcare as well as at membership clubs, sports centers, parks, theaters and museums.

Inflation increased at a 6.9 per cent rate, the fastest since the second quarter of 1981, way above the Fed's 2 per cent target. That resulted in income at the disposal of households dropping at a 5.8 per cent rate, which also limited consumer spending.

Still, households remained cushioned by huge savings, which were at US$1.34 trillion. Wages surged at an 8.9 per cent rate before adjustment for inflation, reflecting a labor market that is experiencing an acute shortage of workers, with 10.6 million job openings at the end of November.

Though the labor market took a step back in early January as Omicron surged, it is at or near maximum employment. A separate report from the Labor Department on Thursday showed initial claims for jobless benefits dropped 30,000 to a seasonally adjusted 260,000 during the week ended Jan 22.

There were sharp declines in claims in Illinois, Kentucky, Texas, New Jersey, New York as well as Pennsylvania.

Support to GDP growth last quarter also came from a rebound in business spending on equipment. But government spending fell at both the federal and state and local levels.

Trade made no contribution after being a drag on GDP growth for five straight quarters, while investment in homebuilding contracted for a third consecutive quarter. The sector is being constrained by expensive building materials, which has resulted in a record backlog of homes yet to be built.

Despite the economy's struggles at the start of the year, most economists believe the run of good fortunes will prevail. Growth estimates for this year top 4 per cent.

"This year may well be an even better year for the economy," said Scott Hoyt, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "Growth will slow and monthly job gains will lag last year's lofty rates. Nonetheless, the economy should be near full employment and inflation near the Fed's target by year's end."//CNA

In this handout photo provided by the Ukrainian Presidential Press Office, Ukrainian President Volodymyr Zelenskyy answers during his on-line interview for media in Kyiv, Ukraine, Friday, Jan 21, 2022. (Photo: Ukrainian Presidential Press Office via AP) - 

Ukrainian President Volodymyr Zelensky on Thursday (Jan 27) hailed the outcome of talks between senior Russian and Ukrainian officials in Paris earlier this week aimed at finding a diplomatic solution to the conflict.

Zelensky "positively assesses the fact of the meeting, its constructive nature, as well as the intention to continue meaningful negotiations in two weeks in Berlin," his press service said in a statement.

Envoys from Moscow and Kyiv on Wednesday agreed after talks that all parties should observe a ceasefire in the east of Ukraine where government forces have been battling pro-Russia separatists since 2014.

"For our state, the first priority today is to achieve stable and unconditional silence in the Donbas," Zelensky's press service quoted him as saying, referring to the areas in eastern Ukraine by their collective name.

"The ceasefire regime must be guaranteed and reliable, and it is the basis on which the next steps can be taken."

A 2015 ceasefire deal - bolstered in 2020 - helped end the worst fighting over two separatist regions in eastern Ukraine that has claimed some 13,000 lives.

A Russian troop build-up on the Ukrainian border has raised fears the Kremlin is planning a military intervention in its pro-EU neighbour.ch//CNA

Finland begin to ease lockdown - 

Finland will begin gradually easing COVID-19 restrictions from Feb 1 instead of mid-February as initially planned as the burden on its hospitals eases, the government said late on Thursday (Jan 27).

On Jan. 18, Prime Minister Sanna Marin said Finland would begin scaling back restrictions from mid-February, but signs of stabilization in the infection rate caused by the Omicron variant of the virus led the government to alter its plan.

"The burden on intensive care units has taken a turn in a better direction," Finland's minister for health and social affairs Hanna Sarkkinen told reporters.

The government decided to start the cautious easing by loosening restrictions on the hours restaurants can remain open to 9pm from a mandatory 6pm closure currently in place, Sarkkinen said.

It also recommended local authorities allow reopening of cultural and sports venues such as gyms, swimming pools and theatres from the beginning of February.

Finland remains among the countries least affected by the pandemic. According to health institute data, the nation of 5.5 million people has to date recorded 470,665 COVID-19 cases and 1,919 related deaths//CNA

People wearing protective masks make their way to Monastiraki square amid the coronavirus disease (COVID-19) outbreak, in Athens, Greece, on Dec 29, 2021. (Photo: REUTERS/Louiza Vradi) - 

Greece will allow music in restaurants and bars again and extend their operating hours as it lifts some of the restrictions imposed last month now that coronavirus infections and the pressure on hospitals are easing, authorities said on Thursday.

The country last month forced bars, nightclubs and restaurants to close at midnight, with no standing customers and no music, following a surge of cases over the Christmas holidays due to the fast-spreading Omicron variant.

"We have decided to scale back the restrictions, taking into consideration the course of the pandemic in terms of cases which have been declining in recent weeks," Health Minister Thanos Plevris said in a televised statement.

He said that despite ongoing pressure on the health system, the rate of hospital admissions and discharges and a shorter duration and less severe illness for the Omicron variant compared to Delta allowed authorities to ease the curbs.

Capacity restrictions will remain in place for sport events, while a double mask is mandatory in supermarkets and transport.

Greece reported 19,712 new cases on Thursday. Infections have been easing since a record high of around 50,000 in early January.

A total of 23,083 deaths linked to COVID-19 have been reported since February 2020 and 1,867,935 cases out of a population of 11 million people//CNA