U.S. economy shrinks in Q1 amid Trump tariffs, recession concerns grow

U.S. gross domestic product (GDP) shrank at an annual rate of 0.3 percent in the first quarter of this year, amid new tariff policies that have increased uncertainty and dampened confidence.

The latest figure follows a 2.4-percent GDP growth in the fourth quarter of 2024, according to the U.S. Bureau of Economic Analysis (BEA).

In an advance estimate, the report said that the decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. These movements were partly offset by increases in investment, consumer spending and exports.

Net exports subtracted 4.83 percentage points from GDP, the most on record, the report showed, indicating companies' efforts to stockpile amid concerns about higher tariffs in the future.

Consumer spending, which accounts for two-thirds of GDP, grew at a 1.8-percent pace, much slower than the 4.0 percent rate in the fourth quarter of 2024. Consumer spending added 1.21 percentage points to the GDP in the first quarter.

Federal government spending shrank by 5.1 percent, subtracting 0.33 percentage points from GDP in the first quarter.

'Vicious cycle'

"The U.S. economy is at a greater risk of recession now than it was a month ago, but this 0.3-percent contraction in Q1 GDP is not the start of one," Wells Fargo economists wrote in an analysis.

"It reflects instead the sudden change in trade policy that culminated in the biggest drag from net exports in data going back more than a half-century," they argued.

The expectation was that recession was going to happen no matter who won the presidency in the November election, said James Boys, a senior research fellow at University College London's Center on U.S. Politics.

"So moving into this quarter, it's very clear you have seen a drop of 0.3 percent. That will not be seen as good news for the White House, and will also be used by the White House to put increased pressure upon Federal Reserve Chair Jerome Powell to reduce interest rates," Boys told Sky News.

Wei Liang, deputy head of the Institute of Macroeconomic and Strategic Studies at the China Institutes of Contemporary International Relations, said under the Trump administration's current aggressive and reckless domestic and foreign policies – marked by the abuse of tariffs, spending cuts and so-called "government efficiency" measures – the economic decline will be exceptionally difficult to reverse.

U.S. President Donald Trump has implemented a range of tariffs on goods from some of the biggest U.S. trading partners and many of those countries have hit back with retaliatory tariffs. At the same time, Trump has pulled back or postponed some tariffs.

"Unless Washington withdraws its abusive tariff policies, austerity measures, and other misguided initiatives, the economy will continue to deteriorate, creating a vicious cycle of escalating panic and economic decline feeding off each other," Wei told China Media Group.

Chaotic 100 days

Former U.S. Treasury Secretary Lawrence Summers, who is a Harvard University professor, blasted the administration's economic policies.

"This has probably been the least successful first hundred days of a presidency @realDonaldTrump on the economy in the last century," Summers wrote in a post on social media platform X.

"We have seen the stock market go down, the dollar go down, forecasts of unemployment go up, forecasts of inflation go up, forecasts on the odds of a recession go up. We've seen consumer confidence collapse. We've seen businesses take back all their previous earnings projections. So, this has been a disastrous hundred days for the US economy," said Summers.

When Trump returned to the White House, chances of recession "were probably about 10 percent," Justin Wolfers, an economist at the University of Michigan, told Fox News. "Now, they're up to around 55 percent."

"The only thing that's happened that has pushed the odds of a recession up so high, so fast, is chaos coming from out of the White House," Wolfers said.

Uncertainty ahead

Uncertainty continues to hang over the latest round of financial results and forecasts for U.S. companies both big and small as they try to navigate a global trade system severely shaken by a shift in U.S. policy. 

Roughly half of the companies in the S&P 500 have reported their latest quarterly financial results, but the focus has been on how they will adjust to tariffs and any change in consumers' behavior. The focus remains blurry for both companies and investors because of the on-again-off-again nature of Trump's policy, reported The Associated Press on Wednesday.

"The situation remains unpredictable and that is problematic for companies trying to plan ahead and investors looking for stability," the report added.

It is foreseeable that, absent a reversal of the Trump administration's abusive policy approach, the U.S. economy will continue to falter in the second quarter, likely experiencing two consecutive quarters of negative growth, Wei said.

"This would further suppress consumption and investment, amplify market participants' pessimistic outlook, and heighten the risk of the economy transitioning from a technical recession into a full-blown downturn –or even a systemic crisis," he added.

(With input from agencies)