Best’s Special Report: U.S. Economy Starts 2025 on Solid Ground

The U.S. economy continues to outperform expectations and has entered 2025 on firm footing, according to a new AM Best report.

According to the Best’s Special Report, “U.S. Economy Starts 2025 on Solid Ground,” the country’s gross domestic product continues to grow based in part on healthy consumer spending, strong corporate profits, slowing inflation and a more accommodative monetary policy. The likelihood of a recession has declined markedly and in December 2024, business optimism reached its highest level in six years.

“Consumer sentiment started inching up during the latter part of 2024, but lower-income households are still at risk,” said Ann Modica, director, AM Best. “Consumer and fiscal spending were the main drivers of U.S. growth in 2024 and are expected to remain strong in 2025.”

According to the report, the GDP registered growth in each quarter for an annualized rate of 2.5% during 2024. The U.S. Federal Reserve projects GDP growth to slow to 2.1% in 2025 but expects the country to outperform other advanced economies.

A solid job market and increases in real wage growth supported consumer spending in 2024. The Federal government spent USD 6.8 trillion during the fiscal year, or approximately 25% of total GDP, with the majority going to entitlement programs, national defense, and interest expense.

Despite the unlikelihood of a recession over the next 12 months, a considerable number of uncertainties cloud the outlook. New proposals for deregulation and tax cuts may support growth, but they also have the potential to re-accelerate inflation. Additionally, tariffs on imports would also be inflationary. Higher-than-expected inflation would complicate the Fed’s monetary policy outlook and has the potential to lead to a rate pause — at the very minimum — or additional rate hikes, according to the report.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=351187.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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