Experts of the Gaidar Institute: "Rising import prices and other factors may have a negative impact on US GDP in Q2"

Dmitry Kuznetsov suggested that reasons for the GDP decline in Q1, i.e. a surge in imports and cuts in government spending may be reflected also in Q2. "We can expect that either we will observe a noticeable upward revision of the estimates for Q1 2025, or the mentioned structural changes will affect the estimates for Q2, when imports will fall (due to purchases in advance), while consumption and investment will reach their consumers. However, this does not mean that the US GDP will show signs of strong growth in Q2: the statistics may well begin to show a decline in GDP production, for example, due to the rising cost of imported intermediate goods," the expert said.

Dmitry Kuznetsov noted that reasons for decline in US GDP in Q1 and exceeded expectations of growth rates in Chinese economy are similar to one another. "The only difference is that goods that had been bought in advance in the US were produced and exported and therefore are already fully accounted in Chinese statistics. However, according to indicative signs, we already observe a significant reduction in US imports from China, therefore, it is unlikely to expect the same positive results from Chinese economy in the next quarters," the expert explained.

"Provisional GDP estimates are often revised, and, as a rule, upwards. Most often, this is due to availability of more complete and accurate statistics. Revision of provisional values is a standard practice all over the world. The analysis shows that the estimate for the US is on average underestimated by 0.4 p.p, but values can be higher during periods of economic turbulence," said Dmitry Kuznetsov.

The expert specified that GDP is calculated in three ways: by production, by utilization (by expenditures) and by the method of GDP formation by sources of income. "For preliminary estimates, usually the expenditure-based method is used, because a sufficient amount of operational statistics is available only for this method. However, this is an implicit method, since in fact revenues (GDP) are estimated by expenditures, and in the moment these entities due to statistical specifics may deviate from each other," the expert emphasized.

Vladimir Sedalishchev emphasized that growth of imports could be related to fears of American producers prior to potential introduction of new duties. "Import growth may indeed have been caused by a desire to build up stocks of imported goods by US manufacturers ahead of a possible rise in duties following the end of Trump’s three-month moratorium. A small reduction in government spending was due to a decline in federal budget expenditures amid a drop in defense spending," the expert said.

Moreover, Vladimir Sedalishchev mentioned the impact of natural disasters. "Severe forest fires in Southern California in January this year undoubtedly contributed negatively to GDP, but experts have yet to assess the full impact of this cataclysm."