PHILADELPHIA – For years, the US economy has been the envy of developed and developing countries alike. Dynamic, productive, and investing heavily in the drivers of future prosperity, the United States has consistently achieved stronger growth than most of the rest of the world – and not by a small margin. But, as spillovers from the US-Israeli war against Iran materialize, concerns about the US economy’s prospects are becoming increasingly salient.
America’s recent economic record speaks for itself. While the US economy contracted sharply during the Great Recession that followed the 2008 global financial crisis, it still recorded average annual GDP growth of 1.48% in 2007-20, compared to only 0.59% for the eurozone, according to International Monetary Fund data. The COVID-19 pandemic produced another disruption, but it did not derail the US economy for long: a robust recovery meant that growth averaged 3.27% in 2021-25, again outpacing the eurozone (2.63%).
Higher productivity, ample risk capital, dynamic entrepreneurship, and, until recently, an expanding labor pool were the primary engines of this growth, which has been turbocharged in the last couple of years by massive investments in AI. Moreover, successive governments have pursued large fiscal stimulus, even though, with low unemployment, one would have expected them to run near-balanced budgets and limit the increase in national debt.
But growth headwinds might be emerging. The US Commerce Department recently halved its growth estimate for the fourth quarter of 2025, taking it from 1.4% to just 0.7%. Now, the household and corporate sectors are confronting spillovers from the Iran war, including higher energy and borrowing costs, which threaten to exacerbate existing financial fragilities and generate new ones.
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