The US economy grew at a significantly slower pace than initially estimated for the final months of 2025, government data showed Friday, a major downgrade that comes as fallout from war in the Middle East looms.
US GDP rose at an annual rate of 0.7 percent in the fourth quarter, the Commerce Department said.
This was sharply down from its earlier estimated 1.4 percent over the October to December period.
It also indicates that the world’s biggest economy was on a weaker footing than anticipated ahead of US-Israeli strikes targeting Iran on February 28 that have since plunged the crude-rich region into war.
Already, the conflict has roiled energy markets and sent fuel prices surging, fanning worries about inflation.
In the fourth quarter, the growth adjustment reflected “downward revisions to exports, consumer spending, government spending, and investment,” the Commerce Department said.
Imports decreased less than initially calculated, it added.
The tepid showing caps the first full year of President Donald Trump’s return to the White House and comes as worries over a cooling jobs market and stubborn inflation are also growing.
A separate report showed Friday that the Federal Reserve’s preferred inflation gauge came in slightly lower than expected in January.
But the 2.8 percent level is still notably above the central bank’s longer term target of two percent.
For the full year of 2025, GDP growth was 2.1 percent, just a touch below the 2.2 percent previously estimated.
Trump was quick to blame a lengthy government shutdown late last year for the slowdown in growth when early estimates were released last month.
In the third quarter, US GDP rose by a much higher 4.4 percent, the Commerce Department said.
While the Republican leader has repeatedly called for lower interest rates to boost the economy, the Fed’s job has been complicated by persistent inflation and now, further price pressures as energy costs spike.
The independent central bank, which has a dual mandate of maintaining stable prices and low unemployment, would typically be inclined to cut rates to shore up employment.
But it also uses higher interest rates as a means to rein in inflation.
The energy shock comes as the US labor market appears to be in a difficult spot, shedding 92,000 jobs in February while unemployment crept up. All of this puts the Fed in a tough spot.
Economists have said that solid consumption and an artificial intelligence boom had kept the economy growing last year.
But households, already struggling with high costs of living, are set to come under further strain with the jump in energy costs, which could push consumers to pull back on spending.
