US economy shrinks for first time in over two years as imports surge ahead of new tariffs

According to preliminary data released Wednesday by the US Bureau of Economic Analysis, inflation-adjusted GDP fell at an annualised rate of 0.3%, reported CNBC.

This pullback follows an average growth rate of roughly 3% annually over the past two years.

Net exports alone reduced GDP by nearly 5%, registering the steepest drag on record.

Consumer spending, which drives nearly two-thirds of the economy, increased at a modest 1.8% pace—its weakest performance since mid-2023.

In contrast, business investment in equipment surged by 22.5% on an annualised basis, making it the report’s strongest growth area.

The economic contraction was largely attributed to a rush in imports, which surged at a 41% annualised rate—the highest in nearly five years—as companies scrambled to stock up ahead of the new tariff regime.

Since imports represent foreign production, they are deducted from GDP calculations, leading to a substantial negative contribution.

These higher imports also flowed into business inventories, which added 2.25 percentage points to GDP—the most since late 2021.

Economists expect that as the trade gap narrows and excess stock is sold off, economic growth may recover in the second quarter.

To better assess domestic demand, some analysts focus on final sales to private domestic purchasers—a metric that excludes trade and inventory swings.

This rose at a 3% annualised rate in Q1, edging up from 2.9% in the final quarter of 2024.

Although spending gains were concentrated in services and nondurable goods, the overall trend suggests weakening household demand. Rising concerns persist that fresh tariffs may further pressure consumers by increasing living costs and potentially affecting jobs.