The Atlanta Federal Reserve’s GDPNow model predicts that U.S. gross domestic product (GDP) will decline by 2.8% in the first quarter. This dire forecast, which contrasts with more optimistic forecasts from a month ago, raises concerns about a possible recession due to President Donald Trump’s economic policies. Could this GDP contraction impact the cryptocurrency market? This article examines the causes of this pessimistic forecast, its potential consequences, and the outlook for the U.S. economy and the crypto sector.
GDP in the doldrums: tariffs and plummeting confidence?
Several factors could explain this GDP contraction forecast. The U.S. trade deficit hit a record $153 billion in January, a situation that some attribute to the “front-loading” strategy of companies, which accelerated their imports before the new tariffs imposed by Donald Trump came into effect. These tariffs, intended to protect American industry, could in fact penalize consumers and slow economic growth.
Another concerning indicator is the sharp decline in the consumer confidence index, which fell from 105.3 to 98.3 in February, the largest monthly decline since August 2021. This loss of confidence could translate into a decline in consumer spending, a key component of U.S. economic growth. Moreover, even Warren Buffett is concerned that Trump’s tariffs will fuel inflation and hurt consumers. Despite only being in office for 11 days in January, consumer spending has already fallen by 0.2%.
Crypto: Bracing for a Macroeconomic Storm?
Macroeconomic fears have been blamed for the recent downturn in the cryptocurrency market. Over the past two weeks, Bitcoin (BTC) and Ether (ETH) have fallen by 10.2% and 21.6%, respectively. Despite Donald Trump promising to make America the “crypto capital” of the world, the total crypto market cap has declined by more than $670 billion since he took office on January 20.
If the economic situation deteriorates, a global liquidity crisis and geopolitical conflicts could intensify, which could negatively impact the cryptocurrency market. Investors could turn away from risk assets and favor safer investments. However, it is important to note that other GDP forecasting models are more optimistic, highlighting the uncertainty surrounding the US economy. The New York and Dallas Federal Reserve models predict growth of 2.9% and 2.4%, respectively, for the first quarter.
