US economy faces downturn risk, Elon Musk-led DOGE may undo decades of progress: SBI Research

The United States economy, which witnessed a sharp post-COVID rebound, may be heading towards a downturn, according to a recent SBI Research report, with long-term trends pointing to slowing GDP growth, declining exports, and weakening consumption.

The report, titled ‘US economy heading towards (un)exceptionalism?’, suggested that the economic surge following the pandemic was an outlier driven by excessive policy measures, and the current trajectory indicates a potential slide into uncharted territory.

“Net savings to GDP is also at the lowest level since 2011… second lowest since 1951,” it noted.

SBI Research highlighted a secular decline in US GDP growth, a trend that has become more pronounced since 2000.

Data from the Atlanta Fed’s GDP Now model estimates a real GDP growth rate of -2.4% for the first quarter of 2025, a sharp drop from 2.9% in January, raising concerns of an impending recession. This comes as US economic growth decelerated from 3.2% in Q4 2023 to 2.5% in Q4 2024 and personal consumption expenditures (PCE) fell in January 2025 for the first time in nearly two years.

The report also flagged a shrinking Total Factor Productivity (TFP) growth and a declining overall value-add in the US economy.

SBI Research warned that high wages—averaging USD 31.47 per hour for private industry workers and USD 16.25 in leisure and hospitality as of December 2024—could deter new investments, particularly in traditional manufacturing.

Non-farm payroll data for February 2025 showed a modest addition of 151,000 jobs, falling short of the expected 156,000, while the unemployment rate hovers around 4%.

“Still, the Fed can be in a dilemma due to inflationary impact of tariffs that could impede economic growth,” the report said, referring to trade policy under the Donald Trump administration.

The report cautioned that drastic cuts in federal spending, led by Elon Musk’s Department of Government Efficiency (DOGE), could exacerbate economic woes by undoing decades of foundational work.

“The zealotry mission of departments like DOGE can “undo” a lot of ground works done in the previous decades, putting downward pressure on the beleaguered economy,” it said.

It noted that structural adjustments, if successful, could lift potential GDP through increased national savings, private sector crowding-in, and technological progress.

“However, this adjustment will have short term costs.”