Will the Economy Continue Its Growth in 2025?

Forecasters see good chances the U.S. economy will continue to grow steadily in 2025, while the odds of a downturn have diminished in recent months. 

The U.S. economy has expanded every year since the pandemic struck, and forecasters expect that growth will continue, albeit slower than in recent years. The Gross Domestic Product, a widely used measure of the economy’s entire output by the Bureau of Economic Analysis, will likely grow at an annual rate of 1.9% in the fourth quarter of 2025, according to a November survey of economists by the Federal Reserve Bank of Philadelphia.

The same economists foresaw a 22.4% chance of a quarter of negative growth by the third quarter of 2025, down from 25% who said the same in the previous round of the quarterly survey. Solid consumer spending and a resilient labor will continue to prop up the economy in the coming year, economists at Goldman Sachs said in a year-ahead forecast in November.

Experts are growing increasingly confident the U.S. will pull off the historically rare “soft landing” from the burst of high inflation that strained household budgets as the country re-opened from the pandemic.

The Federal Reserve’s campaign of interest rate hikes starting in 2022 was meant to cool inflation by raising all kinds of borrowing costs, at the risk of sending the economy into a tailspin and causing a wave of layoffs. In 2022 and 2023, many economists predicted a recession was on the horizon, as usually happens after a cycle of inflation and anti-inflation rate hikes.

Instead, inflation has cooled almost back to pre-pandemic levels while the job market has stayed resilient. The economy has continued to grow to the point that the Fed has begun to lower rates again.

If the growth rate matches the 1.9% forecast, it would be somewhat slower than the 2.6% median growth rate in the five years up to the pandemic. The economy grew faster after a massive downturn in 2020 and grew at a  3.1% annual rate in the third quarter, according to the latest estimate.

Tariffs Could Drag Down Growth

President-elect Donald Trump is a wildcard in the economic outlook, especially because of his campaign promise to impose high and broad tariffs on imports, especially those from China.  

Forecasters at Goldman Sachs expect him to impose only limited tariffs, which they expect would have a minor effect on the economy. However, economists believe that heavy tariffs, in line with Trump’s promise, could drive up prices for all kinds of products, stoke inflation, and drag down the economy.

“The biggest risk is a large across-the-board tariff, which would likely hit growth hard,” Jan Hatzius, chief economist at Goldman, together with other economists, wrote in a commentary.

Still, Goldman’s forecasters are among the more optimistic and expect the economy to grow at a healthy 2.5% annual rate in 2025.