US economy shrunk by 0.3 per cent in first quarter
The United States economy shrunk by 0.3 per cent in the first three months of 2025, after American companies raced to get ahead of Donald Trump’s sweeping tariffs by stockpiling imports.
According to official government data, the US economy fell into contraction from growth of 2.4 per cent, with the effect of higher imports compounded by consumers tightening their belts and cuts to government spending.
Total imports into the US – a key metric for calculating GDP as it is subtracted from the overall figure – hit a record high over the first quarter of the year, as companies raced to get ahead of Donald Trump’s tariff regime.
The figures led net exports to subtract nearly five per centage points from GDP, the largest amount on record, the Bureau of Economic Analysis report said.
Other elements also weighed on the economy, which until this year had consistently bucked the sluggish economic performance of other western economies.
Consumer spending increased at only 1.8 per cent, the official statistics bureau said, the weakest growth in two years but above analyst expectations. Meanwhile government spending fell by 1.4 per cent, dragging on figures, with spending on federal agencies slashed by 5.1 per cent as a result of Elon Musk’s DOGE department’s efforts to bear down on US expenditure.
The inflation-adjusted figures marked the first quarterly contraction from the US economy since 2022. They outstripped initial estimates by economists, many of whom had anticipated the US economy to slow, but not contract. Though trade data released yesterday revealing the scale of the US’s trade deficit prompted many to reevaluate their estimates.
Analysts at BNP Paribas had lowered their estimate for US Q1 real GDP to a fall of 0.6 per cent quarter-on-quarter in the wake of the data. The bank had previously forecast growth of 0.4 per cent, but revised it down “mainly due to March data showing a wider goods trade deficit”.
The official figures, which cover the start of January to the end of March, do not include any of the after-effect of Trump’s sweeping reciprocal tariffs, which the President announced on 2 April.
The trade war is expected to slow US economic activity further over the course of of the next quarter, leaving the largest economy in the world facing the real prospect of entering a technical recession this year.
A recession is defined by US economists as two consecutive quarters of negative growth.
Lindsay James, investment strategist at Quilter, said: “On Donald Trump’s 101st day in office, we are just now beginning to see the true impacts of his policies on the US economy.
“While it does not quite cover the fallout of his ‘Liberation Day’, today’s US GDP data still clearly illustrate what has been a turbulent first quarter of the year for the US, as well as the advance measures that were taken by businesses in an attempt to mitigate the impacts of his tariffs.”