U.S. President Trump accusing Biden as stock markets plummet due to recession apprehensions
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Donald Trump's take on the US economy's lackluster performance in Q1 2025 is nothing short of a finger-pointing spree at Joe Biden. The stunning drop in GDP growth and sluggish job market gains have sent shockwaves through the market, and the former president is adamant that the new administration bears the blame.
The stock market took a nosedive on Wednesday, posting some of its worst performances since Trump took office, as an array of lackluster economic data suggested the dark clouds of a recession were gathering. The dismal figures, including GDP growth slipping by 0.3% and private sector employment only increasing by 62,000 jobs, missed the mark vastly compared to analyst predictions of 115,000 jobs.
But Trump grabbed the 101st day of his presidency by the horns and declared the lackluster performance was not his doing. In true Trump fashion, he insisted in a feisty social media post that the collapse "had nothing to do with tariffs," adding that "Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers."
The skyrocketing tariffs on Chinese goods, which coincided with Trump's "Liberation Day" tariffs, seem to have sent businesses into a panic, stockpiling goods ahead of the planned tariff hikes. This frenzied activity contributed to the surge in imports by a whopping 41%, while exports only rose by a pitiful 1.8%. As a result, this hefty surge in imports erased a staggering 4.8 percentage points from the GDP growth, marking the largest drag on record.
While analysts had braced themselves for a slowdown, the negative figure caught them unawares, leading to an eruption in stock prices. The S&P 500 plummeted by 1.3%, while the Nasdaq dived by 1.8%. Even the UK felt the economic tremors, with the FTSE 100 closing flat after a three-week streak of positive returns.
In their efforts to predict the next moves, economists had anticipated a meager increase of 0.2% in GDP growth—a far cry from the 2.4% growth in Q4 2024. Experts blame the drastic increase in tariffs for the economic slump. But some also argue that the current weakness in expectations for growth will only be amplified in the coming months.
Richard Flynn, Managing Director at Charles Schwab UK, believes that a recession could be hard to avoid at this point, saying, "It seems very likely that this slowdown will be amplified in the coming months." In a bold forecast, Peel Hunt has put the chance of a US recession at 35%, while JP Morgan has drawn a daunting 60% probability.
Nevertheless, some analysts still hold out hope for a rebirth of the US economy. Peter Graf, CIO at Nikko Asset Management Americas, believes that the decline in imports in Q2 will boost GDP growth in the second quarter, potentially leading to an annualized growth of more than 2%.
While the trade war and skyrocketing tariffs on goods have wreaked havoc on the economy, there may yet be a light at the end of the tunnel. As Trump declared defiantly, "Our country will boom, but we have to get rid of the Biden 'Overhang'. This will take a while."
Enrichment Insights
- Impact of Tariffs on GDP growth:
- The surge in imports in Q1 2025, largely due to businesses stockpiling goods before tariffs took effect, contributed significantly to a negative GDP growth figure. This surge does not necessarily indicate recession but rather a short-term adjustment[1][2].
- Analysts expect the reduction in imports in Q2 to boost GDP growth in the second quarter, potentially leading to an annualized growth of more than 2%[2][3].
- Economic Sentiment and Policy Uncertainty:
- Rising inflation, falling consumer confidence, and the unclear effects of tariffs have heightened economic uncertainty[4].
- The uncertain implementation of tariffs and other policies may deter large-scale investments, contributing to economic damage[3].
- Recession Probability:
- Most analysts do not believe that the US is currently in a recession. However, they note that the economic slowdown may continue, with growth rates potentially slowing to around 1.5% annualized by the end of 2025 and beyond[3].
- The administration's ability to recycle tariff revenue and stabilize policy could mitigate some negative impacts[3].
- Consumer and Labor Market Resilience:
- Despite the challenging economic environment, key indicators such as final sales to private domestic purchasers showed resilience, rising 3% in Q1 2025. The labor market remains strong, though consumer sentiment has declined[2][4].
In summary, while there are concerns about economic slowdown due to tariff impacts, a recession is not widely predicted as of Q2 2025. However, ongoing policy uncertainty and economic indicators suggest that caution is warranted regarding future economic performance.
- The dramatic drop in GDP growth, sluggish job market gains, and stock market slump in Q1 2025 have led economists to question the health of the economy, with some predicting a possible recession.
- Donald Trump, in response to these economic troubles, has blamed the current administration and insisted that the decline was not due to tariffs. However, analysts argue that the surging imports in Q1, prompted by companies stockpiling goods before tariff hikes, erased a significant portion of GDP growth and contributed to the slump.
- Despite the challenges, some experts like Peter Graf from Nikko Asset Management Americas remain optimistic that the decline in imports in Q2 could boost GDP growth in the second quarter, reaching more than 2% annualized.
- The tariffs on Chinese goods, enacted during "Liberation Day," have increased economic uncertainty, possibly hindering large-scale investments and contributing to the current economic slump.
- Despite the uncertain effects of tariffs and other policies, the labor market remains strong, with key indicators like final sales to private domestic purchasers showing resilience.
- The ongoing debate about tariffs and their impact on the economy has been a hot topic in finance news, politics, and general-news discussions, as analysts and policymakers try to navigate a path toward economic recovery.
