The US economy is projected to maintain steady growth in 2025, with a diminished risk of recession. Consumer spending and a robust job market are expected to drive this continued expansion, while the policies of incoming President Donald Trump present a degree of uncertainty.
Economists predict a 1.9% annual growth rate for the Gross Domestic Product (GDP) in the fourth quarter of 2025, according to a November survey by the Federal Reserve Bank of Philadelphia. This projection signals continued expansion, albeit at a slower pace compared to recent years. The probability of negative growth by the third quarter of 2025 has decreased to 22.4%, down from 25% in the previous survey. This positive trend reinforces the expectation of sustained economic growth. Goldman Sachs economists attribute this outlook to resilient consumer spending and a strong labor market. Furthermore, confidence is growing in the likelihood of a “soft landing” – a scenario where inflation cools without triggering a recession.
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The Federal Reserve’s interest rate hikes, initiated in 2022 to combat inflation, raised concerns about a potential economic downturn and job losses. However, inflation has subsided to near pre-pandemic levels, while the job market remains resilient. This positive development has allowed the Fed to begin lowering interest rates again. While the projected 1.9% growth rate is lower than the 2.6% median growth rate in the five years preceding the pandemic, it still represents a healthy expansion following the significant downturn in 2020 and the 3.1% annual growth rate in the third quarter of 2024.
Potential Impact of Trade Policies on Economic Growth
The incoming Trump administration’s trade policies, particularly the proposed tariffs on imports, introduce an element of uncertainty into the economic forecast.
Goldman Sachs anticipates limited tariffs with a minimal impact on the economy. However, economists caution that substantial tariffs, as promised during the campaign, could lead to higher prices, renewed inflation, and a significant economic slowdown. A broad-based tariff poses the most significant risk, potentially hindering economic growth considerably.
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Despite these concerns, Goldman Sachs maintains a relatively optimistic outlook, projecting a 2.5% annual growth rate for 2025. This projection suggests a belief in the underlying strength of the US economy, even considering potential challenges posed by new trade policies.
Conclusion
The US economy is poised for continued growth in 2025, driven by strong consumer spending and a resilient labor market. While the incoming administration’s policies present some uncertainty, particularly regarding trade, the overall outlook remains positive. The successful navigation of inflation without triggering a recession further strengthens confidence in the economy’s ability to withstand potential headwinds. However, the implementation of significant tariffs could pose a substantial risk to economic growth. Continued monitoring of economic indicators and policy developments will be crucial for assessing the evolving economic landscape.
