In America - things aren't going fabulous
A Disturbing Forecast for the US Economy in Q1 2025
The final, concrete figures for the U.S. economy in Q1 2025 paint a grim picture, offering ammunition to Trump critics who argue that the negative repercussions of his trade policy on the nation's economy will be graver than initially anticipated [1]. According to revised data from the Bureau of Economic Analysis (BEA) at the U.S. Department of the Treasury, the GDP shrank by 0.5% in Q1 2025, which is 0.3% more than the initial projections. This marked decline, highlighted by Reuters, comes after the coronavirus pandemic and a sharp turnaround from the fourth quarter of 2024, when growth reached 2.4% [1].
In the first three months of the year, imports surged by 42%, which was the primary reason for such weak performances. Companies raced to bring in as many goods and raw materials as possible before the tariffs were imposed. As imports are subtracted from the GDP in official statistics, this significant increase in imported goods into the U.S. has significantly slowed the growth of the American economy [1].
U.S. citizens also contributed to this sluggishness by choosing to save rather than spend money amid high uncertainty in both the country and the global economy. Household spending in the U.S. grew by just 0.5% over the three months, contrary to initial expectations of 1.2% [1]. Government spending in Q1 also saw a significant decline, with only investments serving as a minor positive note. Final sales to domestic consumers, the primary indicator of base demand, increased by only 1.9%, far below expectations [1].
The revised GDP figures confirm the fears of Wall Street analysts: the second term of Donald Trump's presidency will substantially slow down the growth of the U.S. economy. In early June, the World Bank downgraded its global growth projections and identified Trump's tariffs as the chief obstacle to development, not only for the U.S. economy, but also for developing economies. Analysts noted that American tariffs would particularly harm the U.S. economy [1][2].
The BEA points to a resurgence in inflation, which has once again manage to raise its head. The Core Consumer Price Index (CPI), which excludes food and energy prices, increased by 3.7%, surpassing the initial figures; and the core inflation, which measures inflation excluding food and energy prices, increased by 3.5% [1].
Now, economists are left wondering whether Q1 was a one-time shock that will lead to growth and everything will return to normal, or it will mark the beginning of a significant slowdown and contraction. Given Trump's unpredictable tariff policy, which is due to his character and numerous legal issues that trouble his opponents, the economic situation looks quite murky. Despite continuous suggestions from the White House that U.S. trade negotiations with other countries are progressing and are on the verge of completion, tangible results are yet to be seen [1]. Regarding the predicted rebound in the economy in Q2, which is currently being widely discussed in the White House, that too remains uncertain.
Lastly, this week, analysts from JPMorgan Chase forecasted a relatively high probability of a U.S. recession in the second half of 2025 at 40% [3]. Economists at the Federal Reserve Bank of Atlanta, however, believe that in Q2 there will be a rebound, with the GDP growing by 3.4% from April to June [4]. Yet, even if this forecast proves accurate, the burst in GDP under no circumstances can be considered a sign of the might of the world's first economy. Numerous data, especially retail sales, as well as the state of the real estate and labor markets, suggest a weakening economic activity [1].
The troubling economic downturn in Q1 2025, as indicated by the revised GDP figures, raises concerns about the impact of U.S. politics on the nation's economy, with critics arguing that President Trump's trade policy may be more detrimental than initially thought [1]. Furthermore, the forecast for the second half of 2025 from analysts at JPMorgan Chase points to a high possibility of a U.S. recession, adding to the uncertainty in the realm of finance and general-news.
