NEED TO KNOW

• The Bureau of Economic Analysis released the third and final Q4 2025 GDP estimate Thursday: 0.5 percent annualized growth, revised down from 0.7 percent and down sharply from 4.4 percent the prior quarter
• The primary cause was the 43-day federal government shutdown, which the BEA estimates stripped roughly 1.16 percentage points from quarterly growth; federal spending collapsed at a 16.6 percent annual rate
• The U.S. now faces Q1 2026 with oil above $90 a barrel, the Strait of Hormuz effectively mined and contested, and Moody's Analytics placing recession probability at 48.6 percent

WASHINGTON (TDR) — The U.S. economy grew at just 0.5 percent in the final three months of 2025, the Bureau of Economic Analysis confirmed Thursday — the weakest quarterly performance of the year, a number dragged down by a government shutdown, and a baseline from which the country is now trying to recover while a war reshapes global energy markets.

The big picture: The Q4 number tells a story that was already bad before Operation Epic Fury began: a 4.4 percent economy in Q3 fell off a cliff in Q4 due to a self-inflicted shutdown. The Iran war didn't cause that. But it is complicating every mechanism that normally pulls the economy back — consumer spending, energy costs, supply chains, and Fed flexibility.

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• The BEA's final estimate revised Q4 down 0.2 percentage points from the second estimate, primarily reflecting a downward revision to private inventory investment in wholesale trade; full-year 2025 growth came in at 2.1 percent, down from 2.8 percent in 2024

Why it matters: The Q4 report was originally scheduled for January 29; it was delayed twice by the government shutdown itself — a fitting irony. The first look at Q1 2026 GDP arrives April 30, and that number will be the first real-time read on how the Iran war is registering in the data.

• Consumer spending — roughly two-thirds of U.S. economic output — slowed to 1.9 percent growth in Q4, down from 3.5 percent the prior quarter
• Federal spending and investment collapsed at a 16.6 percent annual rate during the shutdown quarter; government spending was the single largest drag on Q4 growth

Driving the news: The revision was expected and largely priced in — but landing today, on day two of a fragile Iran ceasefire, the number sits alongside a set of forward-looking indicators that economists are watching with concern.

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• Brent crude peaked above $112 per barrel during the war; it has retreated but remains near $90 — well above the $65 to $71 range that prevailed before February 28
• The Strait of Hormuz remains functionally contested, with Iran having confirmed mines in the shipping lanes and traffic at roughly 8 percent of normal volume
• The February jobs report — released before the ceasefire — showed payrolls fell by 92,000, with unemployment edging toward 4.5 percent

What they're saying: Wall Street's recession probability estimates have moved sharply since the war began, with no consensus on whether the ceasefire buys enough time to reverse the trajectory.

• Moody's Analytics chief economist Mark Zandi — raised recession probability to 48.6 percent, calling it "close to a coin flip" and warning it could top 50 percent if oil prices stay elevated; baseline in normal conditions is roughly 20 percent
• Goldman Sachs — raised its 12-month recession probability to 30 percent, the third upward revision in 2026; EY-Parthenon is at 40 percent, Wilmington Trust at 45 percent; Goldman warned that markets are pricing in only "inflationary shocks" while ignoring the growth drag — and that a shift to "recession trading" could follow

Yes, but: The shutdown was a one-time drag — and Q1 was always expected to bounce back as government spending normalized. Goldman was tracking Q1 GDP growth at around 3 percent before the ceasefire, with 1.3 percentage points of that reflecting the shutdown rebound alone. If the ceasefire holds and Hormuz reopens, the mechanical bounce may still materialize.

• Oil prices fell sharply on the ceasefire announcement, approaching $90 per barrel; sustained Hormuz reopening would ease the inflation pressure squeezing consumer spending

Between the lines: The GDP number itself is backward-looking — the shutdown is over, the quarter is done. What matters now is whether the ceasefire holds long enough for the economic normalization that was supposed to offset Q4's damage. The problem is the ceasefire is already contested: Hormuz is mined, Lebanon is burning, and negotiations haven't opened. Every day the strait remains functionally closed is another day the oil-price drag stays in the data. The Q1 number on April 30 will be the verdict.

• 65 percent of consumers expect a recession in the next 12 months, per NerdWallet's March survey — up 6 percentage points from February; consumer confidence declines often precede the spending slowdowns they anticipate

What's next:

• April 30: BEA releases the advance estimate for Q1 2026 GDP — the first data point that captures the war's economic impact directly
• The Fed's next meeting follows shortly after; any meaningful Q1 weakness would intensify pressure for a rate cut, but elevated inflation limits the Fed's room to move
• Sustained Hormuz reopening — not just a ceasefire — is the single variable economists say would most change the trajectory

The government shutdown damaged Q4. The Iran war is testing whether Q1 can recover. If the ceasefire fractures before Hormuz fully reopens — which economy shows up in the April 30 data?

Sources

This report was compiled using information from Bureau of Economic Analysis, Fortune / Moody's, CNBC, Fortune / Goldman Sachs, Bloomberg, Fox Business, and EY-Parthenon.

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