On stage in Davos this week, Donald Trump didn’t maintain again as he claimed credit score for America’s gravity-defying financial efficiency.
“Progress is exploding, productiveness is surging, funding is hovering, incomes are rising, inflation has been defeated,” he instructed the gathering of the world’s political and monetary elite. “We’re the most well liked nation wherever on this planet.”
Presidential hyperbole apart, the world’s most necessary economy is barrelling into 2026 with development ranges far exceeding the expectations of most economists when Trump returned to workplace a yr in the past.
“Most superior economies could be thrilled to have the US development numbers,” stated Jason Furman, professor on the Harvard Kennedy College and a former adviser to Barack Obama.
Official statistics launched this week confirmed annualised GDP development within the third quarter of 2025 of 4.4 per cent. The Atlanta Federal Reserve’s operating forecast sees a pick-up to five.4 per cent within the remaining quarter of 2025. Excluding the Covid restoration, that might mark the strongest financial enlargement in over a decade.
This highly effective efficiency comes despite a blitz of financial shocks since Trump returned to energy — the majority of them self-inflicted. The president’s trade wars, punctuated by cycles of escalation and reversal, have been coupled with a market-shaking conflict with the Federal Reserve.
On high of this has come a record-long authorities shutdown and public battles with shut allies culminating within the stand-off over Greenland. Religion in greenback property has been shaken, prompting main buyers resembling Pimco to diversify into different markets.
The danger of one other sudden transfer from Trump knocking the economic system provides to issues a few rebound in inflation, and whether or not the AI growth powering US development is sustainable. However for now, the financial momentum is robust.
“Anyone who says we do not need a growth in a big a part of the economic system is mistaken,” stated Adam Posen, president of the Peterson Institute for Worldwide Economics. “Proper now the US has on stability, a lot to a lot going for it regardless of many, many self-inflicted wounds.”
However he added: “Over time taking pictures oneself within the limbs will gradual you down even in case you miss your chest.”
In Washington, Trump’s advisers have little doubt the economic system is approaching full-blown growth territory — even when an anticipated increase in fourth-quarter development is partly pushed by commerce swings.
“If it seems This autumn development is 5.4 per cent even with the shutdown, it might have even been 6 or 7 with out it,” Joe Lavorgna, counsellor to US Treasury secretary Scott Bessent, instructed the FT. “These are the kinds of numbers that you just see coming right into a growth.”
The administration is making clear it desires to juice the restoration even additional in 2026 by pushing for decrease interest rates alongside a fiscal enlargement.
But regardless of the sturdy headline numbers, many economists warn that the financial enlargement is fragile. Trump’s want to run the economic system “scorching” dangers rekindling speedy inflation, which might puncture the temper of ebullience.
US development can be closely reliant on booming AI funding. If the tech sector’s returns fail to match investor expectations, a painful inventory market reversal might lie forward, with far-reaching results for family wealth and consumption.
The massive hope is that productiveness continues to enhance, pushed by AI, making the speedy tempo of development sustainable and decreasing the chance of overheating, because the US noticed for a interval through the tech growth of the Nineteen Nineties.
“Taking a look at simply the productiveness numbers, they’re blowing away expectations,” stated EJ Antoni, chief economist on the rightwing Heritage Basis, who Trump tapped final yr to run the Bureau of Labor Statistics, earlier than withdrawing the nomination.
“Offered that the tax reforms, regulatory reforms and power reforms proceed, I don’t assume there’s any cause why these ranges of financial development wouldn’t be sustainable.”
The IMF this week forecast GDP development of two.4 per cent in 2026, an improve of 0.3 share factors in contrast with its earlier outlook in October, and nicely forward of the US’s G7 companions. It’s now predicting stronger development than it was in January of final yr, earlier than Trump unleashed his commerce wars. Goldman Sachs analysts predict enterprise funding development exceeding 5 per cent.
Trump’s choice to again down from threats to extend tariffs on European companions has helped quell one apparent threat to that outlook, with analysts predicting the expansion drag from final yr’s levies will proceed to fade.
Marco Casiraghi of Evercore ISI, stated the newest US knowledge “assist the view of a bullish macroeconomic outlook for the US, with well-behaved underlying inflation, stable development and a stabilising labour market”.
The administration is searching for to drive development larger, because it calls for decrease rates of interest from the Fed and slashes rules alongside larger spending and tax cuts put in place by the president’s flagship “One Large Lovely Invoice”.
However the confluence of excessive development with yawning funds deficits of about 6 per cent of GDP in coming years appears to be like unsustainable, warn some economists, stoking issues a few potential rebound in inflation.
“It’s the intent of this administration to have a extremely popular economic system,” stated Gita Gopinath, a former high IMF official.
“Every thing factors to an economic system the place the demand might be fairly sturdy and due to this fact inflation might rise far more meaningfully. And we additionally haven’t seen the total pass-through of tariffs into client costs. That additionally goes within the route of upper inflation.”
The IMF has additionally warned that a lot will rely on whether or not AI income vindicate their heady inventory market valuations.
Valuations should not as elevated as within the dotcom growth, however the whole market capitalisation of US shares is now larger relative to GDP — at 226 per cent versus 132 per cent in 2001.
A drop in AI funding coupled with a “average correction” in tech inventory valuations might knock world development by about 0.4 share factors this yr, in line with the IMF’s evaluation. “Even a extra modest correction might have a sizeable impact on general consumption,” the fund cautioned.
An even bigger drawback for Trump might be that many Individuals are nonetheless not feeling the growth, as excessive costs proceed to chew. A New York Instances Siena ballot this week discovered simply 40 per cent of individuals authorized of the president’s dealing with of the economic system, whereas 58 per cent disapproved.
Shopper confidence fell in December for the fifth straight month, in line with the Convention Board, reflecting apprehension about job prospects and revenue development. Hiring in 2025 was the weakest since Covid.
Actual revenue development stays subdued, and sturdy spending has coincided with a declining financial savings fee, leaving family funds much less safe.
With the midterm elections looming later this yr, Trump is searching for to persuade voters of his success story, launching a weekly highway journey, beginning in Iowa this week, to promote his financial message.
Furman of Harvard stated there was little doubt that the economic system was in “a lot better form” than individuals have been anticipating again in April and Might, after Trump launched his so-called liberation day tariff fusillade.
However he warned in opposition to overstating the well being of the US economic system, citing murky official knowledge and distortions from wild swings in commerce in 2025, with the total image unlikely to change into clear for a number of months.
“In the event you assume we’re in some type of new golden age, I’d see no justification for that within the knowledge.”
Knowledge visualisation by Ian Hodgson in Washington
