The US economy under the Trump administration could contract by 2.8% in the first quarter of 2025, according to the Atlanta Federal Reserve’s latest GDPNow estimate, potentially marking the most severe economic decline since the height of the COVID-19 pandemic.

The GDPNow forecast, which economists use as an early indicator of economic performance, has deteriorated rapidly in recent weeks. The model showed a 4% expansion just one month ago before falling to a 1.5% contraction last Friday and declining further to 2.8% in Tuesday’s update.

“This is sobering notwithstanding the inherent volatility of the very high frequency ‘nowcast’ maintained by the Atlanta Fed,” Mohamed El-Erian, chief economic advisor at Allianz, wrote on X.

The Commerce Department’s recent report on January consumer spending has contributed significantly to the worsening outlook. Personal spending fell 0.2% for the month, with inflation-adjusted spending dropping 0.5%. This represents a full percentage point reduction in GDP contribution compared to earlier projections.

Export performance has also weakened substantially. The contribution of net exports to GDP has fallen from a -0.41 percentage point drag to -3.7 percentage points, according to the GDP tracking model.

If the current projections materialize when official figures are released in late April, this would represent the largest quarterly economic contraction since Q2 2020, when pandemic-related shutdowns caused unprecedented economic disruption.

Economists caution that the GDPNow model is subject to significant revisions, particularly early in the quarter. The Atlanta Fed’s tracker had shown positive growth of 2.3% for the quarter prior to the January consumer spending report.

Market participants will closely monitor upcoming employment and retail sales data for February to determine whether January’s weakness was primarily weather-related or indicative of a broader economic slowdown. 

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