U.S. Economy Contracts for the First Time in Three Years: GDP Shrinks by 0.2% in Q1 2025
The U.S. economy experienced its first contraction in three years during the first quarter of 2025, with gross domestic product (GDP) declining at an annualized rate of 0.2% between January and March. The downturn reflects a combination of factors, primarily the impact of rising imports and escalating trade tensions stemming from the administration’s tariff policies.
According to revised figures released by the U.S. government, this contraction marks a modest adjustment from earlier estimates, yet signals growing fragility in the economic environment—particularly within the business sector affected by protectionist trade measures.
In comparison, the economy had grown at a 2.4% rate in the final quarter of 2024, making the recent pullback a notable reversal. A key driver behind this decline was a surge in imports, which jumped by 42.6%—the fastest pace since Q3 2020. This sharp increase, as companies rushed to stock up on foreign goods before tariffs were enforced, slashed over five percentage points from overall GDP growth. Consumer spending also slowed significantly during the period.
Additionally, federal government spending dropped by 4.6% on an annualized basis, the largest decrease in three years, further weighing on growth.
Despite these challenges, the quarter also featured some positive developments. Business investment rose by 24.4%, while inventory accumulation—triggered by pre-tariff stockpiling—added more than 2.6 percentage points to GDP growth in Q1.
