U.S. Economy Shrank at 0.2% Rate in First Quarter

• U.S. GDP shrank by an annualised 0.2% in the first quarter of 2025, according to revised data that confirmed the first contraction since 2022, as Donald Trump’s trade war ripples across the world’s biggest economy.
• The Bureau of Economic Analysis revised its reading slightly upward from the initial estimate of a 0.3% contraction released last month. However, this adjustment was not sufficient to shift the economy into positive growth for the period, as consumer spending declined.
• The decline in GDP, in contrast to a 2.4% growth in the final quarter of 2024, was primarily driven by a significant increase in imports. Companies hurried to acquire foreign-made goods before the U.S. president's "liberation day" tariff announcement, which took place in early April.
• Although investments increased according to the revised statistics, it was largely offset by a slowdown in consumer spending growth, particularly in services and housing, as Americans contend with higher prices and uncertainty stemming from the trade war.
• Of note, U.S. consumer prices have risen more than 25% since 2019, before the COVID-19 pandemic, which has weighed on consumer sentiment reports and prompted anxious shoppers to cut back.
• Trump’s trade war is expected to be a drag on the U.S. economy during the second half of the year. The IMF in April slashed its outlook for U.S. GDP growth this year to 1.8%, from 2.7% in January.  That said, a U.S. court ruled this week that Trump’s “liberation day” tariffs were illegal, in a decision that could throw the president’s global trade policy into disarray. The White House said on Thursday, May 29, 2025, it would fight the ruling.

(Source: Financial Times)