The US economy shrank in the first three months of the year due a drop in government spending and a surge in imports as firms raced to get goods into the country ahead of tariffs.

The economy contracted at an annual rate of 0.3%, a sharp downturn after growth of 2.4% in the previous quarter, the Commerce Department said.

The report is the most comprehensive reading of how the world’s largest economy is holding up following the introduction of import taxes by President Donald Trump, which has scrambled global trade and created major uncertainty.

But analysts said it would take more time to understand the impact of those changes.

While imports count against growth in calculations of gross domestic product (GDP), the surge is expected to be reversed in the months ahead. Those swings do not necessarily indicate an economy performing poorly.

The data showed business investment increased unexpectedly, while consumer spending – the primary driver of the US economy – also expanded, though at a slower pace than in 2024.

“Overall, not as bad as feared,” said Paul Ashworth, chief North America economist at Capital Economics.