The US economy shrank by 0.3% on an annualised basis in the first quarter of 2025, marking its first contraction since mid-2022, as new tariff measures dampened business confidence and disrupted trade flows.

The latest estimate from the Bureau of Economic Analysis reflects a sharp reversal from the 2.4% growth recorded in the previous quarter. The contraction was largely driven by a surge in imports—often a sign of stockpiling ahead of expected trade barriers—and a drop in federal government spending.

Imports, which are subtracted from GDP calculations, were the biggest drag, with net exports subtracting 4.83 percentage points—the largest impact on record. Government spending declined by 5.1%, subtracting a further 0.33 percentage points.

Consumer spending, which makes up two-thirds of economic output, grew by 1.8%, significantly slower than the 4% pace in late 2024. Despite this slowdown, it added 1.21 percentage points to the overall GDP figure.

Economists are divided on whether this signals the start of a broader downturn. Wells Fargo analysts said the contraction reflects short-term policy disruptions rather than a full-blown recession. Others, including Adam Posen of the Peterson Institute for International Economics, placed the probability of a US recession this year as high as 65%, citing persistent policy uncertainty.

Former Treasury Secretary Lawrence Summers was more direct, calling the administration’s first 100 days economically “disastrous,” and pointing to falling consumer confidence, weak financial markets, and deteriorating forecasts as signs of mounting trouble.