Economists slash Q1 GDP forecasts to post-pandemic low
Policy uncertainty and the Trump administration’s new tariffs are driving a grim outlook for the U.S. economy, with stagflation risks mounting, according to the latest CNBC Rapid Update survey.
The average forecast from 14 economists now projects first-quarter GDP growth at just 0.3%, a sharp drop from the 2.3% recorded in Q4 2024. If realized, it would mark the weakest quarterly growth since 2022, when the economy was still recovering from the pandemic.
At the same time, inflation remains stubbornly high. The Fed’s preferred measure, core PCE inflation, is expected to hover around 2.9% throughout 2025 before easing later in the year—complicating the Fed’s ability to cut rates even as growth falters.
Consumer slowdown and tariff-driven imports weigh on data
Weak consumer spending is a major factor in the downshift. The Commerce Department reported that real spending rose just 0.1% in February after a -0.6% drop in January. Action Economics slashed its consumption outlook to 0.2% for Q1, down from 4% in Q4.
Barclays noted over the weekend: “Signs of slowing in hard activity data are becoming more convincing, following an earlier worsening in sentiment.”
Adding to the drag is a flood of imports that arrived ahead of Trump’s new tariffs, subtracting from GDP in Q1. However, economists expect these to show up as inventory or sales gains in later quarters, offering some offset.
Economists divided on risk of recession
While only two of 12 surveyed economists forecast a Q1 contraction, many warn that 0.3% growth leaves little margin for error. Oxford Economics, the most bearish, expects Q1 GDP to fall -1.6%, but sees a Q2 rebound to 1.9%.
Moody’s Analytics projects a modest 0.4% Q1 rise, warning that “recession will be likely if the president doesn’t begin backtracking on the tariffs by the third quarter.”
Overall, economists forecast a gradual recovery: 1.4% in Q2, 1.6% in Q3, and 2% in Q4. But with global trade wars intensifying and federal job cuts via DOGE (Department of Government Efficiency) underway, downside risks remain elevated.
Sticky inflation complicates Fed response
While markets anticipate rate cuts, inflation could keep the Fed sidelined. Core PCE is expected at 2.8% in Q1, peaking at 3% in Q2, and staying near that level before easing to 2.6% by early 2026.
Until inflation convincingly falls, the Fed may struggle to justify easing monetary policy, despite a slowing economy and rising recession risk.
