U.S. Economy Contracts 0.2% in Q1 2025 Despite Trade Policy Uncertainty

The American economy declined annually by 0.2% during the first quarter of 2025, its first decline since 2022. This updated figure, published by the Bureau of Economic Analysis (BEA), is slightly more positive than the advance estimate of a decline of 0.3% but still represents a sharp deceleration from the 2.4% increase in the last quarter.

The fall was spearheaded primarily by a surge in imports, which rose 42.6% as businesses rushed to stock up in advance of anticipated tariffs from President Donald Trump. The rise in imports widened the trade deficit, taking away over 5 percentage points from GDP growth.

Consumer spending, a key driver of the U.S. economy, also slowed, increasing at a 1.2% annual pace—the lowest rate in three years. Federal government spending decreased 4.6%, another contributor to the economic slump.

On the positive side, private domestic final sales, stripping out volatile factors like inventories and trade, increased by 3.0%, showing good domestic demand.

The economic outlook remains murky, with economists predicting low 2% or less GDP growth during the second quarter. Recent tariffs blocked by a federal court ruling on President Trump have powered the uncertainty, which can influence future economic performance and trade policy.

The final GDP report for the first quarter will come out June 26, 2025.