Jamie Spencer
Forecasters are increasingly optimistic about the U.S. economy’s prospects for 2025, predicting steady growth and a reduced likelihood of recession. This outlook reflects resilient consumer spending, a strong labor market, and cooling inflation.
Growth Expectations for 2025
According to a November survey by the Federal Reserve Bank of Philadelphia, the U.S. economy is expected to grow at an annual rate of 1.9% in the fourth quarter of 2025. While this marks a slowdown compared to the 3.1% growth recorded in the third quarter of 2024, it aligns with the broader trend of post-pandemic stabilization.
The odds of a quarter of negative growth have also diminished, with economists projecting a 22.4% chance of economic contraction by the third quarter of 2025, down from 25% in the previous survey.
A Resilient Economy
Economists attribute the positive outlook to robust consumer spending and a resilient job market, which continue to prop up economic activity. Analysts at Goldman Sachs, in their November forecast, noted the growing confidence in a “soft landing”—an outcome where inflation cools without triggering a recession.
The Federal Reserve’s aggressive interest rate hikes beginning in 2022 were aimed at taming inflation by raising borrowing costs. Historically, such measures often lead to recessions. However, this time, inflation has nearly returned to pre-pandemic levels without significant job losses or a contraction in economic growth.
Comparisons to Pre-Pandemic Growth
If the projected 1.9% growth materializes, it will be slightly below the 2.6% median annual growth rate recorded in the five years preceding the pandemic. The U.S. economy’s post-2020 recovery initially saw higher growth rates due to the rebound from a sharp downturn.
Potential Risks: Tariffs Under President-Elect Trump
While the outlook remains positive, President-elect Donald Trump introduces uncertainty, particularly regarding his campaign pledge to impose broad tariffs on imports, especially from China.
- Limited Tariffs: Goldman Sachs forecasts that Trump will enact only limited tariffs, which would likely have a minimal impact on growth.
- Broader Tariffs: Economists warn that sweeping tariffs could drive up prices, reignite inflation, and hinder economic growth.
“The biggest risk is a large across-the-board tariff, which would likely hit growth hard,” wrote Jan Hatzius, chief economist at Goldman Sachs, in a commentary.
Optimistic Outlook
Despite potential risks, Goldman Sachs remains among the more optimistic forecasters, projecting a 2.5% annual growth rate for the U.S. economy in 2025. This forecast underscores the resilience of the U.S. economy and its ability to navigate challenges in the coming year.
