US economy contracts at 0.3% rate in Q1, first pullback in three years

Economic

China–U.S. Trade War

Summary:

The US economy shrank 0.3% in Q1 2025, its first contraction in three years, driven by a surge in imports ahead of tariffs and higher-than-expected inflation pressures.

The US economy contracted for the first time in three years to start 2025, as a surge in imports dragged down GDP and prices increased more than forecast.

The Bureau of Economic Analysis's advance estimate of first quarter US gross domestic product (GDP) showed economic growth contracted at an annualized rate of 0.3% during the year's first three months, more than the 0.2% decline expected by economists surveyed by Bloomberg. The reading came in significantly lower than the 2.4% rate of growth seen in the fourth quarter of 2024.

This marked the first quarter of negative GDP growth since the first quarter of 2022.

The decline was driven by a large surge in imports, which are a subtraction in the calculation of GDP. Imports surged at an annualized rate of 41.3% in the first quarter as companies front-loaded orders ahead of anticipated tariffs from the Trump administration. The surge in imports was good for a -5% contribution to the GDP calculation in the first quarter.

Final sales of goods to domestic purchasers, another sign of demand in the economy, grew at 3% annualized rate in the first quarter, above the 2.9% seen in the fourth quarter of 2024.

The "core" Personal Consumption Expenditures index, which excludes the volatile food and energy categories, grew by 3.5% in the first quarter, above with estimates for 3.2% and above the 2.6% seen in the prior quarter.

The report measures economic activity through the first three months of the year ending in March, meaning it covers how the US economy functioned ahead of President Trump's tariffs but not after the president's April 2 announcements, increased the effective tariff rate to its highest level in more than a century.

Economists and the Federal Reserve have been anticipating tariffs to push inflation higher and weigh on economic growth in the coming quarters.

Source: yahoo

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Adam

China–U.S. Trade War

Economic

The euro zone economy grew by a stronger-than-expected 0.4% in the first quarter, flash data from statistics agency Eurostat showed Wednesday, as global tariff tensions cast uncertainty upon the bloc’s trajectory.

Economists polled by Reuters had forecast a 0.2% expansion in the first three months of the year, following a revised 0.2% growth print in the last quarter of 2024.

Figures published earlier Wednesday showed the gross domestic product (GDP) of Germany, Europe’s largest economy, rose 0.2% over the same period. French GDP added 0.1% across the three-month stretch.

Continuing a recent trend, southern European and smaller economies outperformed, with the Spanish and Lithuanian GDPs adding 0.6% each, while Italy’s economic output grew by 0.3%. The economy of Ireland, which tends to have volatile readings due to its high proportion of multinational companies, expanded by 3.2% in the first quarter.

Franziska Palmas, senior Europe economist at Capital Economics, said the latest euro zone GDP reading showed the area’s economy started 2025 on a stronger footing than activity surveys had suggested.

“Nevertheless, we still expect growth to slow sharply in the next six months as the US tariffs introduced in April will hit activity,” Palmas said, adding that any boost coming from the huge fiscal stimulus expected in Germany would mostly be felt next year.

The euro was choppy Wednesday, trading 0.08% lower against the U.S. dollar at 10:35 a.m. in London following the print, and 0.2% higher against the British pound. Germany’s 10-year bond yield, seen as the benchmark for the euro area, was three basis points lower.

Euro zone economic growth has been lackluster for much of 2023 and 2024, even as the European Central Bank has been cutting interest rates in an effort to stimulate growth and boost economic activity. The ECB’s deposit facility rate, its key rate, was taken down to 2.25% earlier this month — down from highs of 4% in mid-2023.

The ECB in March said it was expecting the euro zone economy to grow by 0.9% in 2025, slightly below its January forecast. Fresh projections are due out in June, with central bank policymakers last week suggesting to CNBC that the forecasts would prove crucial in the rate decision-making process.

On the sidelines of the International Monetary Fund World Bank Spring meetings, the policymakers and other economists and officials widely noted the U.S.′ tariff policy as a key concern when it comes to growth.

ECB President Christine Lagarde noted that, while the “disinflationary process is so much on track that we are nearing completion,” there were shocks that would “dampen” economic growth.

The European Union, which includes the euro zone countries, is facing 20% blanket trade tariffs from the U.S., which has briefly reduced these measures alongside levies on other counterparties until July for negotiations. The EU has also put its own retaliatory measures on hold for now. The bloc is also subject to additional tariffs on steel, aluminum and autos.

Data released on Tuesday nevertheless showed that economic sentiment in the euro area fell in April, hitting its lowest level since December 2024.

While growth has been subdued, euro zone inflation has been nearing the ECB’s 2% target, coming in at 2.2% in March. The latest inflation data release is expected later this week.

source : cnbc

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Adam

Economic

Market Overview

The Day Ahead: Markets Brace for GDP, PCE, and Earnings Data Today_1

Daily E-mini Nasdaq 100 Index Futures

U.S. equity futures are slightly weaker early Wednesday as traders brace for key macro reports and heavyweight earnings. As of 12:45 GMT, S&P 500 futures are down 0.06%, Nasdaq 100 futures off 0.18%, while Dow futures are flat, up just 40 points (+0.10%).

This follows Tuesday’s rally, where the S&P 500 rose 0.58%, its sixth straight gain—the longest streak since November. The Dow gained 300 points and the Nasdaq added 0.55%.

Trade optimism helped sentiment after Commerce Secretary Lutnick and President Trump signaled progress on deals, particularly with India. But attention now shifts to a tightly packed calendar of economic data and tech earnings that could set the tone into month-end.

Key Economic Releases

A critical wave of U.S. economic data hits between 12:15–14:00 GMT.

ADP Employment Report (Apr) – 12:15 GMT

Forecast: +175K | Previous: +184K

GDP, Q1 Advance – 12:30 GMT

Forecast: +0.4% | Previous: +3.4% (Q4)

BNP Paribas revised to -0.6% citing import surge and trade deficit

Employment Cost Index, Q1 – 12:30 GMT

Forecast: +1.0% | Previous: +0.9%

Personal Consumption Expenditures (PCE), March – 12:30 GMT

Headline: 0.0% MoM, 2.6% YoY | Previous: +0.3% MoM, 2.5% YoY

Core: +0.5% MoM, 2.6% YoY | Previous: +0.3% MoM, 2.8% YoY

Pending Home Sales (March) – 14:00 GMT

Forecast: +1.0% | Previous: +1.6%

These reports could significantly shift expectations around the Fed’s rate path, especially if growth misses while inflation proves sticky.

Notable Earnings

Before the bell:

Caterpillar (CAT) – Est. EPS: $4.35

Humana (HUM) – Est. EPS: $10.07

GE Healthcare (GEHC) – Est. EPS: $0.91

After the close:

Meta Platforms (META) – Est. EPS: $5.20 on $41.4B revenueTraders are watching for signs of ad spend pressure linked to tariffs and user engagement declines. Needham sees risk of earnings miss and potential guidance cuts, forecasting $4.82 EPS. Macro headwinds from fast fashion ad clients (e.g., Temu, Shein) remain a concern.

Microsoft (MSFT) – Est. EPS: $3.23 on $60.6B revenueFocus is on Azure growth, AI monetization, and commercial cloud margins. Stability here could reaffirm leadership in tech, but any deceleration may weigh on sentiment across the sector.

Technical Outlook

The Day Ahead: Markets Brace for GDP, PCE, and Earnings Data Today_2

Daily E-mini S&P 500 Index

The S&P 500 E-mini is stalling just below its 50-day moving average at 5,648, with key resistance near 5,650 and stronger resistance at 5,876 (200-day SMA). A breakout above the 50-day could target the 200-day next. Support sits at 5,362.

The Day Ahead: Markets Brace for GDP, PCE, and Earnings Data Today_3

Daily Volatility S&P 500 Index

The VIX is holding near its 50-day moving average at 25.54. Volatility remains elevated but is compressing. A breakdown in the VIX below 24 could reinforce bullish equity momentum.

Commodities, Crypto, and Bonds

Gold is down 0.9% to $3,286/oz as a stronger dollar and easing trade fears sap safe-haven demand. Brent crude trades at $63.06 (-1.85%), WTI at $59.38 (-1.7%), both set for their worst monthly drop in over three years. Treasury yields are near three-week lows, with the 10-year at 4.16% and 2-year at 3.64%, reflecting increased recession concerns.

The Day Ahead Outlook

Markets face a potential inflection point. With key macro reports compressed into a 45-minute window, traders will be reacting quickly to signals on growth, inflation, and labor costs.

A downside GDP surprise or hot core PCE could recalibrate rate cut expectations and hit risk appetite. Layer on pivotal earnings from Microsoft and Meta after the bell, and this session becomes a macro-tech crossroad.

Tech has led the recent rebound—disappointments here could unwind that momentum. Traders should be prepared for whipsaw moves and look for clarity from today’s economic prints and mega-cap earnings headlines.

Source: fxempire

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Michelle

Economic

Forex

The latest report on the ADP Nonfarm Employment Change was released today, revealing a significant shortfall in the number of jobs created in the non-farm private sector. The actual figure came in at 62,000, a number considerably lower than the predicted 114,000.

This unexpected drop in job creation is a stark contrast to the forecasted figure. Economists had projected an increase of 114,000, indicating a healthy growth in the private sector. However, the actual data fell short by 52,000 jobs, painting a less rosy picture of the U.S. employment landscape.

Comparatively, this month’s data also shows a notable dip when compared to the previous month. The previous ADP Nonfarm Employment Change report had recorded a healthier 147,000 job additions. This means that compared to the previous month, the number of jobs created in the non-farm private sector has decreased by 85,000.

The ADP National Employment Report is a significant indicator of the health of the U.S. economy, providing an early snapshot of the country’s employment situation two days ahead of government data. Based on the payroll data of approximately 400,000 U.S. business clients, it measures the monthly change in non-farm, private employment.

The lower than expected reading is likely to be interpreted as bearish for the U.S. Dollar (USD), as it indicates a slowdown in job creation in the non-farm private sector. This could potentially influence the Federal Reserve’s decision-making regarding interest rates and monetary policy.

While it’s important to note that this indicator can be very volatile, the significant shortfall in job creation is a potential cause for concern. It underscores the challenges facing the U.S. economy in its efforts to recover and grow, and it may signal the need for more robust measures to stimulate job growth.

Source: Investing

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Warren Takunda

Commodity

Oil prices extended declines on Wednesday and were set for their largest monthly drop in almost three and a half years as the global trade war eroded the outlook for fuel demand, while concerns over mounting supply also weighed.

Retracing some earlier losses, Brent crude futures were down 63 cents, or 1%, at $63.62 per barrel by 1159 GMT. U.S. West Texas Intermediate crude futures dropped 42 cents, or 0.7%, to $60.00 a barrel.

So far this month, Brent and WTI have lost around 15% and 16%, respectively, the biggest percentage drops since November 2021.

Both benchmarks slumped after U.S. President Donald Trump's April 2 announcement of tariffs on all U.S. imports. They then sank further to four-year lows as China responded with levies, stoking a trade war between the top two oil-consuming nations.

Trump's tariffs have made it probable the global economy will slip into recession this year, according to a Reuters poll.

China's factory activity contracted at the fastest pace in 16 months in April, a factory survey showed on Wednesday.

U.S. consumer confidence slumped to a nearly five-year low in April on growing concerns over tariffs, data showed on Tuesday.

While orders Trump signed on Tuesday to soften the blow of auto tariffs eased some jitters among investors, oil prices were also undermined by concerns over mounting supply from OPEC+.

Several OPEC+ members will suggest a ramp-up of output hikes for a second straight month in June, sources told Reuters last week. The group will meet on May 5 to discuss output plans.

"The very real possibility that OPEC+ will continue to bring extra barrels to the market as it fights to keep order within its ranks is added to the diplomatic thrusts in Ukraine and Iran, which if successful means more international crude on the water at a time when a trade war will squash any hope of demand growth," said PVM analysts.

Also sending bearish signals on the supply side, U.S. crude oil inventories rose by 3.8 million barrels last week, market sources said on Tuesday citing American Petroleum Institute data.

U.S. government data is due at 10:30 a.m. ET (1430 GMT). Analysts polled by Reuters expect, on average, a 400,000 barrel increase in U.S. crude oil stocks.

Source: Reuters

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Glendon

Political

Ukraine is ready to sign a natural resources deal with the US, a person familiar with the matter said, in a move that could bolster Washington’s support for Kyiv by strengthening their economic partnership.

The draft agreement, which envisages creating a joint fund to manage Ukraine’s investment projects, has been finalised and may be signed as soon as Wednesday, the person said, speaking on condition of anonymity because the talks are private. Ukrainian Economy Minister Yulia Svyrydenko is on her way to Washington for the signing, they said.

As part of the agreement, the US and Ukraine will seek to create the conditions to “increase investment in mining, energy, and related technology in Ukraine,” according to the draft of the document seen by Bloomberg News. Washington also acknowledges Kyiv’s intentions for the deal to avoid any conflict with its plans to join the European Union — long seen as a red line for Ukraine in the talks.

In another breakthrough, the US has agreed that only future military assistance it may provide to Ukraine following the signing of the deal would count toward its contribution to the fund, according to the document. Ukrainian Prime Minister Denys Shmyhal said Sunday that Washington had dropped its insistence on the inclusion in the deal of the tens of billions of dollars in aid delivered since the start of Russia’s invasion.

The signing could come as President Donald Trump grows increasingly frustrated over delays in clinching a ceasefire in the war, currently in its fourth year. He has questioned whether Russian President Vladimir Putin is willing to make progress toward a peace plan that Trump sought to deliver within the first 100 days of his new administration. Trump is “confident” a deal on critical minerals will be signed with Ukraine, the White House said on Tuesday.

The agreement “strengthens the strategic partnership between the parties for the long-term reconstruction and modernisation of Ukraine, in response to the large-scale destruction caused by Russia’s full-scale invasion”, according to the document.

Two other technical accords that will determine how the joint fund is going to operate have yet to be finalised, the person said.

The US Treasury Department spokesperson didn’t immediately respond to a request for a comment.

US and Ukrainian officials signed a memorandum of intent earlier in April and continued to hash out the technical details of the deal, which would grant the US first claim on profits transferred into a special reconstruction investment fund that would be controlled by Washington.

A previous attempt to clinch the agreement fell through earlier this year after Ukrainian President Volodymyr Zelenskiy clashed with Trump and Vice President JD Vance in the Oval Office. Zelenskiy met one-on-one with the US president at the Vatican on Saturday before the funeral of Pope Francis.

Russia intensified its attacks across Ukraine’s frontline and several cities overnight, as the Kremlin takes a maximalist line in peace negotiations brokered by the US. While Trump envoy Steve Witkoff sought to persuade Putin that Russia should agree to a ceasefire that halts fighting along the current frontlines, the Russian leader insisted Moscow must take full control of four regions of Ukraine which it claims but doesn’t fully occupy, Bloomberg News reported.

White House Press Secretary Karoline Leavitt reiterated on Tuesday that Trump was getting frustrated with the difficulty of getting both Ukraine and Russia to agree to a peace deal, but that “he remains optimistic that we can get this done”.

Source: Theedgemarkets

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Michelle

Political

An attack targeting Hindu tourists in Indian Kashmir that killed 26 men has triggered new tensions between India and Pakistan and sparked fears of a conflict, with Pakistan saying it has intelligence suggesting India intends to launch military action.

Here is a look at the defence forces and arsenals of the nuclear-armed South Asian neighbours, according to data from the London-based International Institute for Strategic Studies.

PERSONNEL

India has 1.4 million active personnel in its defence forces - 1,237,000 in the army, 75,500 in the navy, 149,900 in the air force, and 13,350 in the coast guard.

Pakistan's strength is thinner, with under 700,000 personnel, of whom 560,000 are in the army, 70,000 in the air force, and 30,000 in the navy.

GROUND FORCE

India's arsenal includes 9,743 pieces of artillery against Pakistan's 4,619 pieces, and 3,740 main battle tanks compared to Pakistan's 2,537.

AIR FORCE

While India has 730 combat-capable aircraft, Pakistan's fleet is much smaller at 452 aircraft.

NAVY

India's navy has 16 submarines, 11 destroyers, 16 frigates, and two aircraft carriers, while Pakistan's navy has eight submarines and 10 frigates.

NUCLEAR ARSENAL

India has 172 warheads and Pakistan boasts of almost an equal number, with 170.