Unexpected GDP Decline in the USA: Causes and Effects
The unexpected decline of the US Gross Domestic Product (GDP) in the first quarter of 2025 has surprised both economists and investors. GDP fell by 0.3 percent compared to the previous year, based on an initial estimate from the US Department of Commerce. This development is particularly notable as economists had anticipated a growth of about 0.3 percent.
Causes
- Tariff Policy and Trade: The tariff policy, which has caused uncertainties in the past, may have led to a rise in imports. In the first quarter, imports increased by 41.3 percent while exports only rose by 1.8 percent. This difference directly affects the GDP calculation.
- Inflation and Economic Uncertainty: Tariffs and inflation burden the markets and contribute to economic uncertainty.
Effects
- Labor Market: The labor market also shows signs of cooling. In April, fewer new jobs were created than expected, indicating a weakening labor market.
- Stock Market Reaction: The US stock markets reacted nervously to the news. The Dow Jones, the S&P 500, and the Nasdaq lost value, halting the upward trend of recent days.
- Fed’s Monetary Policy: Such economic data could impact the monetary policy of the Federal Reserve (Fed). A weaker economy could lead to interest rate adjustments to strengthen the economy.
Relevance for Savers and Investors
For savers and investors, this data is highly relevant as it can influence economic stability and the potential returns on their investments. A weaker economy may lead to lower returns, while an expansive monetary policy from the Fed could potentially strengthen the markets. Therefore, it is essential to closely monitor these developments and consider adjustments in investment strategies.