The robust economic growth promised by President Donald Trump during his campaign has not materialized. Instead, the US GDP contracted by 0.5% annually in the first quarter, exceeding the Commerce Department’s initial 0.2% decline estimate. Trump’s comments about potentially announcing a new Federal Reserve chair earlier than anticipated further weakened the dollar to a three-year low.
The Commerce Department revised its GDP estimate on Thursday, reporting a 0.5% drop, marking the first decline in three years. CNN noted that the downturn was driven by a sharp rise in imports and fears over new tariffs. Reduced government spending also contributed, though higher consumer spending and investments partially offset the losses. In contrast, the economy grew by 2.4% in the last quarter of 2024.
Imports surged by 37.9%, the most since 2020, subtracting nearly 4.7 percentage points from GDP, as businesses stockpiled goods ahead of expected tariffs. Consumer spending grew but slowed significantly, while federal government expenditures fell by 4.6%, the steepest drop since 1986.
Analysts suggest the import surge is unlikely to persist into the second quarter, easing pressure on GDP. FactSet economists project a rebound to 3% growth in Q2, supported by Trump’s recent moderation of tariff plans.
“Thursday’s GDP data reflects past concerns over tariffs in early April, which also weighed on stock prices,” said Paul Stanley, chief analyst at Granite Bay Wealth Management. “With stocks now near record highs and lower tariffs, businesses are better positioned to adapt.”
The IMF in April forecasted 1.8% US growth for 2025, down from 2.7% in January, and cut its 2026 estimate to 1.7% from 2.1%.
Dollar Under Pressure
The dollar faced significant strain, dropping to a three-year low against a basket of six currencies on Thursday. This followed a Wall Street Journal report that Trump is considering an earlier announcement of the next Fed chair, signaling potential White House influence on monetary policy toward earlier rate cuts, per The Financial Times.
The dollar index fell 0.5% to 97.219, briefly declining 0.7%. It also weakened over 0.5% against the euro to 1.1721 USD. The dollar has lost more than 10% this year amid trade war tensions, tariff impacts, and concerns over US debt sustainability.