Economy shrinks most in a year in Q1

GDP falls for first time in the past year: GDP contracted 0.7% in seasonally adjusted annualized rate terms (SAAR) in the first quarter, below the 2.4% expansion tallied in the fourth quarter of last year and marking the worst result since Q1 2024. The fall was the first in a year and was sharper than expected by the market. On an annual basis, economic growth improved to 1.7% in Q1, following the previous quarter's 1.3% increase and marking the best result since Q1 2023.

Main engines of the economy splutter: Domestically, private consumption growth fell to 0.2% in Q1, marking the weakest expansion since Q1 2024 (Q4 2024: +0.3% SAAR), weighed on by downbeat consumer sentiment amid some of the highest inflation rates in decades. Moreover, public consumption dropped at the sharpest pace since Q4 2024, contracting 0.1% (Q4 2024: +1.3% SAAR). That said, fixed investment growth accelerated to 4.2% in Q1, following the 1.6% increase logged in the previous quarter. Externally, the contribution of net trade to GDP growth turned negative. Exports of goods and services contracted 2.3% in Q1, marking the worst reading since Q1 2024 (Q4 2024: +6.9% SAAR), weighed on by a correction in services sales after a blockbuster Q4. Conversely, imports of goods and services rebounded, growing 12.1% in Q1 (Q4 2024: -5.5% SAAR).

Panelist insight: EIU analysts said: “We have revised down our forecast for real GDP growth in 2025 and 2026 from 0.7% and 0.8% to 0.4% and 0.2% respectively, in the wake of an unexpectedly large rise in US average weighted tariffs and a substantial downward revision to our forecast for US economic growth in those years.”

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