The US economy contracted in the first quarter of 2025
Marking the first contraction since 2022, the US economy contracted in the first quarter of 2025, its first quarterly contraction since 2022.
According to preliminary data, real GDP fell by 0.3% year-on-year, well below the average growth of around 3% over the past two years.
This decline is primarily due to increased imports prior to the imposition of reciprocal tariffs, as well as weak consumer spending in the country.
Reports from the US Bureau of Economic Analysis showed that net imports shaved about 5 percentage points from GDP, the largest negative impact on the US economy to date. Investment, on the other hand, added about 3.6% to GDP.
Consumer spending, which accounts for nearly two-thirds of GDP, grew by only 1.8%, the weakest growth rate since mid-2023.
This indicates a decline in consumer economic activity, which has a negative impact on the economy as a whole.
Regarding price indices, the Personal Consumption Expenditures (PCE) price index rose 2.3% year-on-year in March 2025, down from the 2.7% increase recorded in February of the same year.
Meanwhile, the Core PCE index, which excludes food and energy prices, rose 2.6% in March, in line with expectations, after recording a 3.0% increase in February.
On a monthly basis, the core PCE index was unchanged in March, following a 0.5% increase in February.
The core PCE is an important tool used by the Federal Reserve to monitor inflation and achieve its 2% inflation target.
Many economists expect the United States to see an increase in inflation rates this year, given the continued impact of tariffs imposed by the administration of former President Donald Trump.
These tariffs are expected to raise the cost of goods in American markets, potentially increasing inflationary pressures in the coming period.
In response to the US economic downturn, former President Donald Trump denied that trade wars were the cause of the downturn, instead blaming current President Joe Biden.
In a post on his Truth Social platform, Trump noted that the economic figures have nothing to do with tariffs, predicting that the US economy would experience a major boom when the tariffs are fully implemented.
He added, “I haven’t even started until January 20th… When the recovery begins, it will be unprecedented… Just be patient!”
Despite the contraction the United States experienced in the first quarter of 2025, the US economy still faces significant challenges, ranging from increased imports and weak consumer spending to the impact of tariffs and rising inflation.
However, many observers are looking forward to an economic recovery in the near future, especially if tariffs begin to achieve their desired economic goals.
