A significant shortfall in the American economy at the end of the first year of Trump's rule
US gross domestic product (annualized) grew by only 1.4%. in the fourth quarter of 2025 – the Department of Commerce reported on Friday, presenting the first preliminary reading.
The result is much weaker than economists' expectations: the average forecast was 3%. This also means a clear slowdown in the growth dynamics of the American economy, because – according to the final data – in the third quarter of 2025, the local GDP increased by 4.4% on an annualized basis. For comparison, in the second quarter of 2025 the dynamics was 3.8 percent, and in the first quarter of 2025 it was negative at the level of 0.6 percent. (due to increased imports for fear of tariff increases).
Factors contributing to real GDP growth in the fourth quarter were increased consumer spending and investment. These changes were partially offset by declines in government spending and exports. Imports, which are subtracted when calculating GDP, have also declined (which helps GDP growth).
Consumer spending growth slowed to 2.4% in the fourth quarter. from 3.5 percent in the previous quarter. Investments accelerated to 2.6 percent. from 0.8 percent Due to the so-called shutdown (government shutdown due to lack of consent to increase debt) government spending decreased by 16.6%. in the fourth quarter after an increase of 2.7%. in the third quarter. The shutdown in October and November was record-long.
“Economists estimate that artificial intelligence, including data centers, semiconductors, software and research and development, accounted for a third of GDP growth in the first three quarters of 2025, cushioning the impact of tariffs and immigration restrictions,” Reuters reported.
The Independent Congressional Budget Office estimated that the shutdown would reduce GDP in the fourth quarter by 1.5 percentage points. The reasons include fewer services provided by federal workers, lower federal spending on goods and services, and a temporary reduction in benefits under the Supplemental Food Assistance Program. The bureau predicted that most of the lost production would eventually be recovered, but between $7 billion and $14 billion would not be recovered.
The USA uses a different way of comparing GDP than European countries. They annualize their data, i.e. they calculate them as if they were to cover the entire yeare.g. the monthly value is multiplied 12 times, and the quarterly value 4 times. For example, if GDP growth in a given quarter was 1%. compared to the previous quarter, the annualized growth rate was – to put it simply – just over 4%. This means that we cannot directly compare data on GDP dynamics in the USA to that recorded in European countries that publish data on economic growth dynamics without annualization.
Inflation in the US remains elevated and economic growth has slowed down
Core PCE inflation was 2.7% in the fourth quarter. on an annualized basis. This result is slightly higher than the forecast of 2.6 percent, and at the same time indicates a slightly lower price growth rate than in the third quarter, when it was 2.9 percent. The PCE (personal consumer expenditures) deflator is the inflation measure preferred by the US Federal Reserve. The main annualized GDP deflator in the fourth quarter amounted to 3.7 percent, the same as the previous quarter, but clearly higher than the forecast 2.9 percent.
Deflators are a measure of inflation for the entire economy. Unlike the popular consumer inflation index (CPI), which looks at the average consumer's wallet, they take into account the prices of all goods and services produced in the country.
For all of 2025, U.S. real GDP grew 2.2%, a lower growth rate compared to 2.8%. recorded in 2024. This means that in 2025 the world's largest economy generated a GDP of USD 30 trillion. The value of the United States' GDP is approximately 27.5%. world economy.
The PCE inflation rate increased by 2.6% in 2025, the same as in 2024. The core PCE rate, excluding food and energy prices, was 2.8%, slightly lower than 2.9%. recorded in 2024 (on Friday we also learned the December data on PCE inflation, i.e. the Fed's preferred measure of price growth).
