•Trump blames Biden for weak economic growth
•European markets cut losses, close higher
The US economy contracted for the first time in three years in the first quarter of 2025, swamped by a flood of imports as businesses raced to avoid higher costs from tariffs, underscoring the disruptive nature of President Donald Trump’s chaotic trade policy.
Trump’s tariffs have continued to roil financial markets and upend global trading patterns, disrupting measures of economic growth as well.
US Gross Domestic Product (GDP) adjusted for inflation, declined at an 0.3 per cent annual rate in the first three months of the year, the Commerce Department said. It was, on the surface, a stunning reversal from the strong growth at the end of last year, when the economy expanded at a 2.4 per cent rate.
Overall gross domestic product declined in the first quarter, but a measure of underlying growth, based on spending and investment, was solid.
Nonetheless, both consumer and business spending likely reflected front-loading before the import duties kicked in. As such, the report reinforced Americans’ growing disapproval of Trump’s handling of the economy as he marks 100 days in office.
Trump swept to victory last November on voter angst over the economy, especially inflation. Consumer confidence is near five-year lows and business sentiment has tanked, while airlines have pulled their 2025 financial forecasts, citing uncertainty over spending on nonessential travel because of tariffs.
The economy was also weighed down by a decline in federal government spending, likely linked to the White House’s aggressive funding cuts, marked by mass firings and shuttering of programmes, separate reports by Reuters and the New York Times, said.
The report captured activity before Trump’s “Liberation Day” tariffs announcement, which ushered in sweeping duties on most imports from the United States’ trade partners, including jacking up duties on Chinese goods to 145 per cent, sparking a trade war with Beijing.
But Trump blamed former President Joe Biden for the weak GDP and sought to highlight strong domestic demand, including the rebound in business spending as outlays on equipment surged at a 22.5 per cent rate.
“We had numbers that despite what we were handed, we turned them around,” Trump said at the White House.
Final sales to private domestic purchasers, which exclude trade, inventories and government spending, grew at a solid 3.0 per cent rate. But this measure of domestic demand, which Trump also referred to, also was distorted by tariffs.
Domestic demand was strong during the last year of the Biden administration, growing at a brisk 2.9 per cent in the October-December quarter.
Senate Democratic Leader Chuck Schumer in a statement accused Trump of running the country into the ground. “Donald Trump must admit his failure and reverse course, and immediately fire his economic team,” Schumer said.
Imports jumped at a 41.3 per cent rate, the largest rise since the third quarter of 2020, when the nation was in the throes of the COVID-19 pandemic, which fractured global supply chains. That obliterated a modest rise in exports, resulting in a large trade gap that chopped off a record 4.83 percentage points from GDP.
Some of the imports ended up as inventory in warehouses, partially blunting the hit to GDP. Inventory accumulation surged at a $140.1 billion pace after rising moderately in the October-December quarter. Inventories added 2.25 percentage points to GDP after being a drag for two straight quarters.
Meanwhile, stocks tumbled on Wednesday, spoiling a stock market comeback in April, as data showed the U.S. economy contracted in the first quarter, raising fears the economy was slipping into a recession under the weight of Trump’s flurry of policy moves, especially on trade.
US markets opened in the red, reacting to fresh economic data that showed the economy unexpectedly contracted in the first quarter of 2025. Investor sentiment soured sharply, sending major indexes tumbling.
The Dow Jones Industrial Average (DJIA) dropped 422.94 points to 40,104.68, down 1.04per cent . The Nasdaq Composite slid 363.98 points to 17,097.34, a drop of 2.08 per cent , while the S&P 500 fell 82.88 points to 5,477.95, down 1.49 per cent.
Besides, the volatility index, often called Wall Street’s fear gauge, spiked 10.22 per cent to 26.64, signaling rising market anxiety.
In commodities, gold dipped $20.50 to $3,313.10 per ounce, while oil dropped $0.53 to $59.89 per barrel. The US 10-year Treasury yield edged slightly lower to 4.168per cent , reflecting a modest flight to safety.
On the currency front, the euro weakened against the US dollar, with the EUR/USD pair trading at 1.137, down 0.002 or 0.149per cent. “The decline in real GDP in the first quarter was driven by an increase in imports, slower consumer spending, and a drop in government expenditures,” the Commerce Department said.
US financial markets responded negatively to the report, with futures falling ahead of the opening bell on Wall Street.
“Just 100 days into his presidency, Donald Trump’s unpredictable tariff strategy is dragging down the economy, with businesses stockpiling imports ahead of a potential tariff crisis,” said Democratic Senator Elizabeth Warren in a statement following the GDP release.
Also, European stocks pared losses to close higher yesterday, as investors reacted to worse-than-expected economic data out of the United States.The Stoxx 600 index closed up 0.46 per cent, its seventh consecutive winning day.
Healthcare stocks moved higher, with the regional Stoxx Healthcare index adding 1.3 per cent. A number of companies in the industry addressed US tariffs in their first-quarter earnings reports, with GSK, AstraZeneca and Smith+Nephew all telling investors they were well positioned to cope with any impact.
Trump’s tariffs have unsurprisingly emerged as a key theme in early corporate results, with many citing the difficulty of forecasting, while bank profits beat estimates. Those trends continued Wednesday, with Swiss lender UBS reporting better-than-expected net profit of $1.692 billion in the first quarter, while auto giant Stellantis suspended its full-year guidance due to uncertainties.
Elsewhere, preliminary data showed on Wednesday that the euro zone economy grew by a better-than-expected 0.4 per cent in the first quarter of the year, following stagnation at the end of 2024.
THISDAY
Comment here
You must be logged in to post a comment.