US economy shrinks for first time since 2022 amid import surge

The US economy contracted in the first quarter of 2025, marking its first decline in over two years, driven by a sharp increase in imports ahead of new tariffs and a slowdown in consumer spending.Inflation-adjusted gross domestic product (GDP) fell at an annualised rate of 0.3%, according to the US Bureau of Economic Analysis’ preliminary figures released on Wednesday. This follows average annual growth of around 3% over the previous two years. Net exports reduced GDP by nearly 5% — the largest drag on record.Consumer spending, which accounts for roughly two-thirds of GDP, rose at a 1.8% pace, the slowest since mid-2023. Business investment in equipment increased by 22.5% on an annualised basis, the strongest area of growth in the report.The contraction comes amid a rush by firms to import goods before a new wave of tariffs takes effect. Imports surged at an annualised rate of around 41%, the biggest increase in nearly five years.
Also read: Finance Ministry warns of private capex stalling due to prolonged global uncertaintiesAs imported goods are not produced domestically, they are subtracted from GDP, which contributed significantly to the quarter’s negative reading.The rise in imports may also be reflected in business inventories, which added 2.25 percentage points to the GDP—the most since late 2021. Economists expect that as these imports are sold and the trade gap narrows, GDP may rebound in the second quarter.Some analysts prefer looking at final sales to private domestic purchasers, which exclude trade and inventory fluctuations, for a clearer picture of domestic demand. This measure grew at an annualised 3% in the first quarter, up slightly from 2.9% at the end of 2024.Spending growth was led by services and nondurable goods, although overall household demand appears to be softening. Concerns are growing that tariffs could put further strain on consumers, potentially affecting employment and raising the cost of living.
Also read: India’s industrial production growth remains steady at 3% in March

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