Can we avoid the “R”?

US GDP for the first quarter was weaker than expected, and was in fact negative QoQ (-0.3%). The main reason (drumroll) was the net exports; US companies front run the Trump administration and ordered more goods during the first quarter in anticipation of tariffs, causing the trade deficit to widen enormously. See chart below, which goes back 30 years. We are likely going to see a big reverse of that chart in the second quarter as a consequence of tariffs. We will still have a trade deficit, but probably less negative than this quarter. That was the bad news. The good news is that real GDP would have been -4% if it wasn’t for the investment component. And that’s the amazing thing about the U.S. economy: American companies have invested hundreds of billions of dollar into AI infrastructure and that has compensated almost to the last cent (except for that -0.3%), alongside consumer spending, the drag of next exports. And if you are a believer, it is possible that just that component saves us from an officially declared recession in the second quarter. Corporate earnings this week have been very good so far, and that can change animal spirits for good and erase the liberation day dip, which is now the next hurdle.

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