US economy contracts 0.3% as companies race to beat tariffs

Annualised 0.3% fall was largely attributed to companies building inventory ahead of the 2 April tariffs announcement

3D map of the United States with the American flag on which is placed a red arrow pointing downwards indicating a decline or a recession on a dark background

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The US economy contracted for the first time in three years in the first quarter of 2025, falling an annualised 0.3%.

Companies rushing to build up inventory before the 2 April tariffs announcement contributed to the contraction as the trade deficit surged.

US GDP grew 2.4% in the previous quarter.

“Today’s figures are at once revealing and inscrutable,” Jochen Stanzl, chief market analyst at CMC Markets said.

“They illustrate the considerable turmoil into which the US economy has plunged, compelling importers to build up inventories in order to evade forthcoming tariffs. Yet they offer scant guidance on how growth might evolve from here.”

He added that the merchandise trade deficit swelling to a record $162bn was an anomaly unlikely to recur this quarter.

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Peter Graf, CIO at Nikko Asset Management Americas, agreed the surge in imports “puts an asterisk” on the negative GDP reading, but underlines how dramatically government policy expectations can drive real-world business decisions.

“However, the unexpectedly sharp rise in prices means that nominal growth stayed close to the pace of previous quarters, explaining the robust 1Q earnings announcements,” he said.

“With few signs of a slowdown in core activity or price growth, this report is unlikely to motivate the Trump administration to accelerate de-escalation, or to give the Fed pause about keeping rate cuts paused.”

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Lindsay James, investment strategist at Quilter, added: “The Federal Reserve will reconvene next week for its third monetary policy meeting of 2025 and a hold on rates appears to be almost set in stone, particularly given the risks of being seen to buckle to recent criticism from Donald Trump.

“The start of 2025 has been stormy to say the least and the Fed has an increasingly difficult landscape to navigate, so we can expect to see very little in the way of rate cuts until much later in the year.”

This story was written by our sister title, Portfolio Adviser