US economy contracts by 0.2%: Dollar and recession fears rise
The United States Bureau of Economic Analysis has released an estimate regarding economic growth. The gross domestic product (GDP) of the United States in the first quarter of 2025 showed a decline of 0.2% on an annual basis. This represents an upward revision of 0.1 percentage point from the initial estimate. Both the dollar and experts reacted negatively to the news.
The decline in real GDP during the first quarter of 2025 was primarily driven by an increase in imports and a decrease in government spending. Imports, which are deducted in GDP calculations, significantly affected the final outcome. The negative effects of these factors were somewhat counterbalanced by increases in investments, consumer spending, and exports.
It is noteworthy that this marks a significant shift in trend compared to the fourth quarter of 2024, when the U.S. economy experienced a growth of 2.4%. The economic downturn chiefly stemmed from a slowdown in consumer spending, which had previously propelled economic growth, alongside the aforementioned rise in imports and decline in government spending.
Real final sales to private domestic purchasers, encompassing consumer spending and gross private fixed investment, rose by 2.5% in the first quarter. However, this outcome is worse than the previous estimate, which was revised down by 0.5 percentage points.
Threat of recession. Dollar reacts negatively
Piotr Bawolski, CFA from Michael / Ström Brokerage House, commented on the data, viewing the latest reading as a negative signal.
Although the revision of the GDP change forecast suggested an improvement in expectations, we are still dealing with a negative reading, indicating the looming threat of a recession. This, along with a larger than expected increase in jobless claims, may provide the Fed with a significant signal supporting the decision to lower interest rates in the U.S.," he stated in a commentary sent to money.pl.
Inflationary pressure and income situation
The Gross Domestic Purchases Price Index rose by 3.3% in the first quarter, marking a downward revision of 0.1 percentage points from previous estimates. The Personal Consumption Expenditures (PCE) Price Index reached 3.6%, remaining consistent with earlier forecasts. This is a crucial indicator for inflation, closely monitored by the U.S. Federal Reserve.
Excluding food and energy prices, the PCE Price Index rose by 3.4%, with a downward revision of 0.1 percentage points. These data suggest sustained inflationary pressure in the American economy despite the slowdown in economic growth.
Real gross domestic income (GDI) declined by 0.2% in the first quarter of 2025, contrasting with a remarkable increase of 5.2% seen in the fourth quarter of 2024. This notable shift indicates a worsening income situation in the U.S. economy.
Profits from current production, which include inventory valuation adjustments and capital consumption, decreased by approximately £95.3 billion in the first quarter. This is a drastic change compared to the increase of around £165.2 billion recorded in the fourth quarter of 2024.
The Bureau of Economic Analysis announced that the third estimate of GDP and revised data on corporate profits and GDP by industry for the first quarter of 2025 will be released on 26th June 2025, at 13:30 GMT.
