After a year of steady economic growth, the U.S. economy has stumbled early in 2025, raising concerns about its ability to sustain momentum amid mounting trade tensions. Government data expected this week will likely show that the economy expanded at a mere 0.4% annualized rate in the first quarter, marking the weakest pace in nearly three years.
Consumers, once the driving force behind growth, appear to be pulling back. Weighed down by concerns over job security and future economic prospects, household spending has cooled noticeably. At the same time, the country’s ballooning trade deficit — exacerbated by a rush to import goods ahead of sweeping new tariffs — is weighing heavily on overall output.
This combination of slowing consumer activity and deteriorating trade balances threatens to push the U.S. economy toward a period of near-stagnation. Financial markets, already jittery, are bracing for signs of further weakness, with fears of an impending recession gaining traction.
A Fragile Labor Market
Despite these challenges, the labor market has shown some resilience. Hiring has slowed modestly but remains positive. Economists forecast that Friday’s monthly employment report will show a gain of approximately 130,000 jobs — about 100,000 fewer than the surprise jump recorded in March. The unemployment rate is expected to hold steady at 4.2%.
The job market’s relative stability offers a glimmer of hope that the economy can avoid a full-blown downturn. However, should hiring weaken further or layoffs begin to spread, the broader picture could darken considerably.
The Tariff Effect
The first-quarter GDP report will offer the earliest official glimpse into the economic effects of President Donald Trump’s aggressive trade policies. Although the most expansive tariffs were only announced on April 2, businesses and consumers scrambled during the early months of the year to preemptively import goods, skewing trade data and amplifying the trade deficit.
Business investment, particularly in sectors such as commercial aircraft, may provide a rare bright spot in an otherwise lackluster report. Yet there are clear signs that companies are growing more cautious. Many firms are holding off on new investments and expansions as they wait for more clarity on trade negotiations, tax reforms, and broader economic policy.
A Bloomberg survey of economists suggests that GDP growth will struggle to exceed 1% in each of the first three quarters of 2025. Private investment, once a robust pillar of growth, is expected to retrench as uncertainty lingers.
Consumers Pull Back
As trade tensions weigh on business confidence, American consumers — traditionally the engine of U.S. economic expansion — are also showing signs of fatigue. Personal consumption is slowing, with many households opting to limit discretionary spending in favor of saving amid fears of job instability and rising living costs.
Economists expect a mixed report on personal consumption and income for March. While spending likely ticked higher, income growth is predicted to have moderated, highlighting the growing squeeze on household budgets.
Adding to the cautious tone, inflation pressures appear to be easing. The Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures (PCE) price index, is forecast to have risen by 2.6% from a year earlier — the smallest annual increase since June 2024. This slowdown could influence the Fed’s policy path, with most economists now expecting no change to interest rates at the upcoming May meeting.
A Global Picture of Slowdown
Beyond U.S. borders, signs of economic stress are also emerging.
In Canada, voters are heading to the polls to elect a leader who will steer the country through an increasingly hostile trade relationship with the United States. Both leading candidates, Liberal Mark Carney and Conservative Pierre Poilievre, have pledged to prioritize trade negotiations with Washington while boosting government spending to fortify the economy.
Canada’s GDP data for February and a preliminary estimate for March will offer crucial insight into how the country’s economy fared at the start of the year. Early strength, driven by exporters rushing to beat U.S. tariffs, may give way to weakness as business and consumer confidence falter. The Bank of Canada expects first-quarter GDP growth at around 1.8% but has signaled it may resume interest rate cuts if conditions deteriorate.
In China, economic figures also hint at instability. Industrial profits are expected to show an uptick for March, fueled by front-loaded demand ahead of tariffs. However, both official and private purchasing manager indexes (PMIs) due later this week are expected to sag, reflecting the broader drag from trade tensions. Bloomberg Economics estimates that existing tariffs could slash China’s direct U.S. exports by more than 80% over the medium term, putting up to 2.3% of its GDP at risk.
Asia-Pacific economies are feeling the ripple effects as well. Australia’s inflation data is projected to show a slight cooling, potentially pressuring the Reserve Bank of Australia to cut interest rates next month. Meanwhile, South Korea’s weak GDP figures may reinforce calls for monetary easing there. Taiwan is set to report its first-quarter GDP this week, along with a host of trade updates from countries across the region.
In Japan, the Bank of Japan is widely expected to hold rates steady as policymakers await clarity on trade negotiations. Similarly, Thailand’s central bank is expected to cut borrowing costs in response to dimming growth prospects.
Europe Feels the Strain
Across Europe, data due later this week will gauge the continent’s economic resilience. Eurozone GDP growth is expected to come in at a modest 0.2% for the first quarter, with France barely expanding and Germany and Italy faring only slightly better.
Inflation, however, appears more manageable. Euro-area consumer prices likely rose 2.1% in April, while the core measure that strips out volatile elements such as energy is expected to rise 2.5%. Policymakers at the European Central Bank have struck an increasingly optimistic tone on inflation, suggesting that Europe may not face the same inflationary challenges as the United States.
Meanwhile, British mortgage and housing data are expected to show signs of a cooling market, a development that could further complicate the UK’s economic outlook.
Conclusion: A Crossroads for the Global Economy
The U.S. economy — and indeed the world economy — finds itself at a critical juncture. Trade tensions, shifting monetary policies, and evolving consumer behaviors are reshaping the economic landscape.
In the United States, near-stagnant GDP growth underscores the vulnerabilities emerging beneath the surface of what was, until recently, a resilient economy. While the labor market and inflation data provide some hope, the risks of prolonged weakness and potential recession are growing.
Globally, the situation is no more reassuring. From Canada to China, Europe to Southeast Asia, economies are feeling the drag of trade disruptions and slowing growth.
The next few months will be crucial in determining whether these early warning signs give way to a full-blown downturn or whether policymakers can steady the course.
