The US economy shrank by an annual rate of 32.9% between April and June, its sharpest contraction since the second world war, government figures revealed on Thursday, as more signs emerged of the coronavirus pandemic’s heavy toll on the country’s economy. The record-setting quarterly fall in economic growth compared to the same time last year came as another 1.43 million Americans filed for unemployment benefits last week, a second week of rises after a four-month decline. The annualized figure is the largest drop in quarterly gross domestic product (GDP) – the broadest measure of the economy – since records began in 1945. Economists expect the rate to improve sharply later this year but the outlook has been clouded by the recent rise in infections across the US. The news came as Germany, Europe’s largest economy, also recorded a dramatic slump in economic growth, contracting by 10.1% between April and June, the biggest decline since 1970. The news triggered a sell-off in US and European markets. US GDP shrank 8.4% in the worst quarter of 2008, the height of the last recession, according to Credit Suisse. The previous record came in 1958 when economic growth fell 10% during the Eisenhower recession. The fall came as large parts of the US economy shut down in March in an attempt to halt the spread of the coronavirus across the US. The closures led to a historic number of layoffs and sent unemployment soaring to levels unseen since the 1930s Great Depression. All states have now begun to open up to some extent but the virus keeps spreading – more than 150,000 people have now died of Covid-19. As cases rise in California, Florida, Texas and elsewhere, some states have moved to restrict businesses again to stop the spread, renewing pressure on the US economy. “This is something we have never seen before,” said Jason Reed, assistant chair of finance at the University of Notre Dame. “At first I felt it was like a natural disaster that had hit the entire country at the same time. Now it is evolving into something worse than that.” The rise in unemployment comes as Congress is at loggerheads about how to implement a new round of financial support for those who have lost their jobs in the shutdown. The US initially pledged to pay people laid off by the pandemic an extra $600 in benefits a week but that extra payment expires on Friday and its replacement has yet to be finalized. Some 20 million American’s qualified for the extra payments and the payments now account for 15% of the entire nation’s wages. The deadlock is expected to cause chaos for unemployment offices already overwhelmed by claims. Lexie Testa, 26, from Lansing, Michigan lost her hotel job at the end of May and waited two months to receive her first unemployment payment. While her husband has retained his job, she said it had been a struggle since her layoff and that she was wary about finding new work as the virus continues to spread. Testa said it was too early to cut benefits given how hard it remains to find work and the fact that the virus is still spreading. “I know a lot of people who aren’t really comfortable returning to work with children in their home and actually I have a few friends that cannot because they have no child care,” she said. “I am lucky enough that I have a grandmother who usually babysits for me but I just am not really comfortable yet as I have always worked in the food service industry and I see places in my city of Lansing shut down and reopen due to Covid cases often.” On Wednesday, the Federal Reserve said the US economy faced major challenges from the coronavirus pandemic and pledged to continue taking aggressive action to support an eventual recovery. “The path of the economy will depend significantly on the course of the virus,” officials said in a statement.