US GDP shrinks for the first time in three years
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This is Andrew Peach with World Business Report. Today, the US economy contracts during President Trump's first months in office. GDP fell by 0.3%, Mr Trump blaming Joe Biden. China blames US tariffs for falls in its manufacturing figures. There are more positive numbers in Europe, though.

Also in the programme, I'll talk to the UN Assistant Secretary General about Afghanistan's economy under Taliban rule, and we'll hear why a fall in demand for diamonds is damaging Botswana. Diamonds are absolutely fundamental to the economy of Botswana, with up to 50% of government revenue coming from diamond income. First, US growth figures out in the last couple of hours show the first contraction in the economy in three years.

The figures show GDP down 0.3% in the first quarter of this year in contrast to European economies, with gross domestic product in the Eurozone growing by 0.4%. This news after President Trump used his rally in Michigan, marking the first 100 days of his second term, to say this. We're the greatest economy in the history of our country. The stock market went up 88%. We did great.

And we're going to do better now. After decades of politicians who destroyed Detroit to build up Beijing, you finally have a champion for workers in the White House. And instead of putting China first, I'm putting Michigan first and I'm putting America first. Live to New York and our North America business correspondent, Michelle Flurry. Give us a bit more on these numbers that have come out, not showing the US economy doing as well as President Trump would have us think.

Yeah, I mean, I think there had been a range of forecasts, everything from sort of the more upbeat to the kind of, quite frankly, more pessimistic. And what we landed on was something in the middle that showed the US economy slowed down in the first three months of Donald Trump's second presidency. And

A lot of this is driven in part by imports, that there was a kind of desire by companies to try and stockpile, to get ahead of tariffs. And that counts as a negative towards GDP. So that was sort of one of the factors dragging it down. It has also raised concern about consumer spending, which is critical because about two thirds of the US economy is driven by

by what Americans spend. And there were signs that perhaps some weakness was beginning to creep in. And so what so far has been bad vibes, the worry is, is now turning into reality. And that's why you're seeing US markets right now selling off so sharply on this news.

Now, the US trade adviser Pete Navarro has just arrived at the White House. He had a quick moment with reporters there saying because of imports, the point you were making, this is actually good news and next time things will change. He's also talking about a big increase in domestic investment of 22% and saying that's off the charts as a positive sign.

Yeah. And we also had Donald Trump making comments on Truth Social, basically calling this a Biden overhang because the data is backward looking and saying that, you know, growth would come once his policies, notably, you know, tariff policies had a chance to really kick in. I mean, I think economists have

sort of disputed that version of events, questioning whether tariffs will boost growth. Perhaps in the long term, they might reshore manufacturing, but will they boost growth in the short term? And most forecasts seem to show, including the IMF, that actually it will kind of have a depressing effect on growth going forward. And you're starting to see Democrats kind of

seize on that. So, for example, the Democratic congressman, Richie Torres, posted on X, Donald Trump has finally liberated the American economy from growth. I think that is something the administration is very sensitive to and is pushing back hard against that idea. But it seems to me it's not like a PR exercise what Donald Trump and his administration are saying here. They're doubling down on the policy

and they genuinely think it's going to work despite the contrasting views of most world economists. They do think that the tariffs in the end are going to be good for the US economy. And I think if you talk to most mainstream economists –

They say, actually, it's worrying. They think it will damage the economy. But the argument that the Trump administration is making is that, you know, that's factoring in things like worst case scenarios, retaliation. But ultimately, we don't know where...

Donald Trump will settle. And I think that was the point you saw US Treasury Secretary Scott Besson make yesterday, which is that, you know, uncertainty isn't bad for negotiations. Remember, the administration is in the middle of negotiating trade deals. Again, there's skepticism there about how long

realistically it takes to get trade deals done. But along the way, how much will he soften his tariff position and what will come out of these negotiations? And I think that will really determine sort of where the economy lands. More facts later in the week, we should just flag up. We've got some job figures on Friday. We've got tech companies reporting later on today. So more and more data which will indicate whether the things are going in the right direction or the wrong direction.

Yeah. And, you know, if you look at some of the companies that have benefited the most since Donald Trump's election, just in stock market terms, you know, the Magnificent Seven, which is the big kind of names in technology, they have been the biggest kind of winners, if you like, in all of this. And so now as...

concern has grown, they've also taken some of the hardest hits. And I think that's why investors will be paying close attention to results from the likes of Meta, Apple, Amazon, who all report in the next two days. Michelle, thank you. Michelle Fleury in New York for us. Russ Mould is here in the studio with me, investment director from AJ Bell. Russ, contrast what's happened

happening in the US, what we know about the US economy, with other data out today looking at the Eurozone, looking at Thailand. How are those economies faring? So the Eurozone showed unexpectedly stronger growth in the first quarter, up 0.4%. Italy and Spain better than expected. Germany back to growth after a dip late last year.

And some of that is down to the European Central Bank cutting interest rates aggressively and easing in inflation, weaker oil and gas prices. One of the good things that's come out of all of this Trump situation is that's helping take some of the steam out of prices and give central banks a chance to apply some fiscal stimulus, monetary stimulus. And also the Germans, fiscal stimulus is coming with them changing their debt rules. So there are things that may be going Europe's way. In Thailand, again, inflation has eased.

It's cutting interest rates. The 42nd interest rate cut from central banks worldwide this year. Again, it can do that because inflation has cooled and it's clearly worried about growth further down the track as are the Europeans. And what about the US tariffs? Because Donald Trump's administration wants to punish some of these

and they seem to be doing better than the US. Is that because the tariffs haven't really taken effect yet? Again, these are backward-looking numbers, and the big tariff announcement came on 2nd April, and we're talking about data that goes up to the end of March. So again, the big fear is that's where the ties are moving now with their interest rate cuts,

It's why the European Central Bank has been moving with its interest rate cuts. And the danger is going forward, we do see some more difficult data, yes. OK. And what are the markets saying about the numbers in the US? Because the administration appears to look at them and go, yeah, everything absolutely on course. Yeah, the stock market isn't happy. It's down 1.5% looking at the S&P 500. And that's because...

analysts have penciled in double-digit percentage corporate profits growth this year, and you won't get that if there's a US recession. So that's the challenge. You've got more and more companies saying, we're doing our best here, but we just don't know what's going on because the tariff policy is changing from day to day. So you've had companies like General Motors say, we can't give any more forecasts this year. UPS lay off staff. And airlines even give out two sets of forecasts, one with tariffs, one without. Right.

That's an interesting way of approaching it, isn't it? More with Russ on the way very shortly. Let's look what's happening in China now. We have more data showing that manufacturing is down. No great surprise, I suppose, but it is down more than people had expected. The purchasing managers index down from its highest level in a year in March.

because, of course, companies have been trying to ship their goods before the tariffs were imposed. The US Treasury Secretary Scott Besant said there were substantial layoffs happening at Chinese factories. President Trump maintains that China's been ripping off the US for years. Here he is defending the 145% tariffs on Chinese goods in an exclusive interview with ABC News and senior national correspondent Terry Moran.

145% tariffs on China, and that is basically an embargo. They deserve it. It'll raise prices on everything from electronics to clothing to building houses. You don't know that. You don't know whether or not China's going to eat it. That's mathematics. China probably will eat those tariffs, but at 145, they basically can't do much business with the United States.

They were making from us a trillion dollars a year. They were ripping us off like nobody's ever ripped us off. And by the way, we have other countries that were just as bad. If you look at the European Union, it was terrible what they've done to us. Every country, almost every country in the world was ripping us off. They're not doing that anymore.

So let's talk to Andy Hsieh, independent economist in China. Andy, how do people in China feel about the rhetoric from Donald Trump that we just heard there in that interview? This is crazy stuff. A trade is voluntary. Nobody's forcing you to buy anything from China. So this kind of rhetoric is just...

What's your reading of these numbers? How much has China been hurt? Well, I think that there is a shock, obviously. Export to the United States is about 2% of GDP. So when it stops, obviously there's a shock. But it's not something that China cannot handle. The economy is very resilient.

It handled the pandemic really well. So I think life will go on. When you hear Donald Trump say China will be able to eat the tariffs, in other words, the state will be able to absorb the extra and not cause ruin to businesses in China as a result of them. What do you make of that? He's very much mistaken. I hear the Walmart has just told its suppliers in China to start production again and to ship. And Walmart will pay the tariffs.

I think he does not understand how it works. American buyers like Walmart, like Apple will pay the tariffs. And pass those on to their customers rather than it being a punishment to China as a country, as he hopes. I think that he's very wrong. China may suffer some loss, but the U.S. suffers more, bigger loss. So when you have a loss to Chinese imports, the U.S. GDP will contract by quite a lot.

The US is headed for a very big recession. Is there anything here that makes China more likely to want to negotiate? If Trump wants to negotiate, the Chinese government has made it very clear, take away the tariffs, then we can talk. And is that about saving face on China's part, or is it a much more hard-bitten economic decision than that? No, it's much more fundamental.

And this is a shakedown, right? It's kind of like a gangster thing. If you compromise this time, he'll come back and do it to you again. And how is China doing in its efforts to go, OK, if we're going to lose some trade with the US, fair enough, we'll do more business in other Southeast Asian countries or with India or with Africa.

This is a long-term thing. The short-term thing is really some domestic stimulus. The government just announced a policy to take care of the workers that will be laid off by some of the factories affected. The government also will be looking out for their housing and so forth. So there is no social disruption in China. The narrative that China is fragile, if you press it, somehow it will collapse. This is just totally wrong. China is very resilient.

That's The Economist. Andy Shee with me from Shanghai. Russ Moore from AJ Bell here in the studio. Is Andy right that China might be heard, but nowhere near enough to be particularly concerned or to change tack in any sense? I think China is wrestling with a real estate bust still. Its banking system is weighed down with some bad loans. So the Chinese economy is nowhere near as strong as these authorities would like it to be. And I think a lot of economists, stock market investors, are waiting to see what form of stimulus

the Chinese authorities apply to the economy to try and get domestic consumption going and rebalance its economy. We know it needs rebalancing away from exports and infrastructure building and housing developments, and they're aware of that themselves and looking to do something about it, but it may take some time.

And what about the US administration talking about large numbers of people being laid off at Chinese factories? It's very hard to get facts on that sort of thing. It is. I mean, in the survey that we've seen today, this purchasing managers index, I mean, the reasons that it dipped below 50, which is indicative of softness in Chinese manufacturing, weak exports was one area, weak orders was another area.

were soft, but also employment was weak, and so there may be a little bit of an indication there, and the fact that the Chinese are talking about providing support to those who may have lost their job suggests that there is some hit there at least. Now, you've perhaps heard the news in the last few minutes that in Washington we are being told that we could be very close to this minerals deal between Ukraine and the US. The BBC has been told it may even be signed today. This is

the deal that was supposedly going to be signed when Donald Trump and Vladimir Zelensky fell out at the White House back in February. Certainly no confirmation of this, nothing official about it, but the rumour mill suggests the minerals deal with Ukraine and the US might be imminent. What will the economic impact of that be? Well, the timing will be convenient from a stock market perspective, given we've had this weak first quarter GDP number, which the stock market doesn't like.

And the one thing that's been getting the stock market to go up since its lows on the 9th of April has been talk of trade deals. And so if there is the first sign of a deal that may persuade financial markets and investors that Trump does indeed have a plan and he's not just slightly making it up as he goes along, when he's pressured into doing so and finding loopholes when they're convenient. And if there is indeed a sense that there is a mission, there is a plan and that deals can be done, that may be seen as a good thing.

See, I read that and I think, oh, there's a bit of news management going on there. You look at it and you think there's a bit of market management going on there. Maybe they're fundamentally the same thing. Maybe they are the same, you never know. More with Russ on the way. This is World Business Report with Andrew Peach here on the BBC World. .

Asking the right questions can greatly impact your future, especially when it comes to your finances. So if you're looking for a financial advisor you can trust, certified financial planner professionals are committed to acting in your best interest. That's why it's got to be a CFP. Find your CFP professional at letsmakeaplan.org. Our kids have said to us since we moved to Minnesota, we are far more active than we've ever been anywhere else we've ever lived.

Moving to Minnesota opened up a lot of doors for us. Just this overall sense of community, the values that Minnesotans have. It's a real accepting, loving community, especially with two young kids. See what makes Minnesota the star of the North. New residents share why they love calling it home at exploreminnesota.com slash live.

We're going to focus on Afghanistan now, where GDP is up under Taliban rule, but only 7% of women are working. There are also big inequalities between different parts of Afghanistan, and this is the conclusion of a report out today by the United Nations Development Programme. I've been talking about it to the UN's Assistant Secretary General, Kani Wignarajah.

The report we are launching today, Andrew, is really a story of curious divergence. You know, you're seeing modest macroeconomic growth. I mean, it's the first time really we're tracking this with the World Bank, ADB, others. It's 2.7 percent. And you think that with that strongest stream of revenues coming in to the center, you're

that there'd be improvements in the household economy. And yet our subsistence in security data is showing that things are getting worse. It can be corrected because there is more money coming into the economy. But this is the main story of the report we are launching today. Okay. So our listeners will be thinking, so where's the money going?

This is not that much money, but the money is coming from improved cross-border trade. So some of those regions of Afghanistan will be seeing improvements based on that income. A lot of improvement, very disciplined tax collection, all very correct. I would say what we are not seeing is a translation of that going across the country, particularly to the poorest parts of the country.

into small infrastructure, public services, support for things like water, small farm irrigation systems and health, which is what shows then a bump in household economy improvements.

Obviously, something else that's changed since the Taliban returned to power is growing inequality based on gender. I have very, very strong memories of being on the BBC World Service the day it happened and speaking to a female minister in the outgoing government who said to me rather starkly she didn't expect to be alive by the next morning. Now, actually, she's moved to Arizona and she's alive and well, but that was the expectation when the Taliban returned. And in many ways...

women and girls have seen the quality of their life diminish and also their economic activity greatly restricted. You're seeing much greater stability and overall security for everyone, for men and women. Certainly for women, that has not translated into their space, their rights, their ability to

really enjoy a full education, a life in the public domain. So in fact, this survey that we did shows that only 7% of women are employed outside the home. Now, 84% of men employed outside the home. And the other really startling fact from our 2024 data is that more and more women say they are really getting their income through casual daily labor.

Now, in 2023, that was about 37% who said this. Now it's 57% who earn their monies through casual labor. So disappearance of women from the formal workforce is near complete.

When the Taliban returned, they said they weren't going to be the same as the Taliban of 20 years previously. They were going to do a much better job of running the country and looking after its economy. I suppose this data would suggest there's been some delivery on that. At a macro level, they've brought macroeconomic stability and they are increasing these revenues.

From now, as a governing authority, they've got to look at all parts of the country and all communities, and most importantly, 50% of the population, as needing an improved standard of living. Is you see that the Northeast,

part of Afghanistan, which borders Tajikistan, and then the southern region, which borders Pakistan, really remain way behind. And then the biggest drop in the household economy, a

in terms of the drop is in the central part of the region. That could also be because geography is very harsh there and the climate, the disappearance of water has really impacted agricultural produce, which is a lifeline for all communities across Afghanistan.

And that was Kani Wignaraja, who's the Assistant Secretary General at the United Nations. Next to Botswana, famous for its diamonds. The second largest diamond ever found, a rough 2,492 carat stone, has been unearthed in Botswana.

But the country is reliant on diamonds for most of its exports and a third of its fiscal revenue. The diamond market is in trouble. There's been a slump in demand now for two years. So Botswana's finance minister is signalling drastic cuts in government spending. I've been talking to James Campbell, who's the managing director of Botswana Diamonds.

Diamonds are absolutely fundamental to the economy of Botswana. If you go back about 60 years or so, Botswana was one of the poorest countries in Africa. It was a desert state. And with the discovery of diamonds at Arapa, then Droneng, and then with the formation of Debswana, which is a joint venture between the government of Botswana

And the bears, it's basically been almost like a phoenix has risen from the ashes. Botswana is a modern, vibrant economy, which has very, very little debt, but almost completely reliant on diamonds with up to 50% of government revenue coming from diamond incomes.

And now we have the government in Botswana saying that income is going to be drastically reduced because of a lack of demand in the diamond market, causing them to make pretty tough government decisions. That's absolutely correct. The diamond market was beginning to recover a little bit post the fight back of natural diamonds over artificial or synthetic diamonds. But what with the onset of tariffs with the new American currency,

administration. That's taken another kind of backseat to diamond demand. And we expect diamond demand to continue to be poor. So it's absolutely right that the vice president of Botswana and the Botswana authorities have to try and seek to reduce expenditure. That's so interesting that there were sort of green shoots of recovery in your sector of the economy, which have been quashed by the tariffs. 50% of the world diamond demand comes out of the United States.

And up until the middle of last year, about 50% of that was actually in artificial synthetic diamonds. But there was a fight back from the natural industry led by De Beers, marketing that natural diamonds are what you should buy if you really want to celebrate love and life's wonderful occasions. And that was beginning to take root in the market itself.

And then with the onset of tariffs, and in particular the tariffs on India, where many of the world's diamonds are cut and polished, of 27%, that's going to land on the American consumers in pocket. And probably with the cost of living crisis, it will all likely lead to a drop in diamond demand, a drop in natural diamond demand.

It's obviously a luxury product. It's a special thing, which I guess people can't necessarily afford when money is tight. Is it as simple as that? Because I'd also imagine in the luxury market, you're often dealing with customers for whom money is no great problem.

Well, the diamond market is not one market, Andrew. Yes, the so-called bottom end of the market where you have lower income people who really save hard to try and get a smaller diamond for their engagement or wedding, that market will be the one which will be greatly affected. And that is one of the larger markets.

because those people, as you quite rightly say, will stop spending money on diamonds and put it towards a mortgage or food. And then at the other end of the spectrum, yes, you've got ultra high net worth individuals who buy large coloured stones in particular, and they will not be really affected by what's going on at the moment. And that's James Campbell, the managing director of Botswana Diamonds. Ross Mull from AJ Bell still with me.

Tell me about the diamond market. I've been learning a lot about this today. It's clearly very difficult, and it's one of the reasons why Anglo-American, quoted on the London and Johannesburg Stock Exchanges, is looking to sell De Beers, because it's finding that particularly difficult market, and he wishes to concentrate his efforts elsewhere. But yeah, look, laboratories for growing diamonds have been a major challenge. A downturn in luxury demand has been a major challenge. And now we have tariffs, stones cut in Belgium, polished in India.

in America, so they're constantly crossing borders. It makes it very, very difficult indeed. And how do you, how do the markets read this luxury market where, as James was saying, you're talking about high net worth individuals who are affected by financial problems but not affected in quite the same way as everyone else? It doesn't mean they can't afford things.

No, I mean, it's a terrible shame. Tiffany's was taken private. It used to be quoted on the New York Stock Exchange, and it was a brilliant indicator for the global economy. Tiffany's share price would bottom before the economy got better and would peak out before the economy got worse. And it's a shame it's disappeared. I'm hoping it comes back one day. But even the ultra-wealthy do occasionally take very good care of their money. And if they see their assets falling in price, like their stocks and shares, for example, then even they start to pull back.

It should be an Audrey Hepburn reference at this point, I think. Anyway, let's talk about Volvo. What's going on with them? Well, again, it's another carmaker like Stellantis, like Mercedes, like General Motors, having a very difficult time because of the Trump trade tariff situation where, again, policy seems to change. We've now got exemptions for parts coming into America. So the president is trying to make things a little bit easier for them. But Volvo have said...

We just don't know what's going to happen in the next two years. So we're going to scrap all of our financial targets. And in the first quarter of this year, they announced a 60% drop in profits, which they're responding with a cut in costs. What they're trying to do is boost production from their South Carolina facility, which, let's face it, is in the end what the president wants to hear. But they've got factories in Sweden, Belgium, India. So, again, it's going to take them some time to get their supply chains in order. 60% sounds enormous.

It is, but again, it's a very highly operationally geared business. So just 1% or 2% changes in sales will mean a big change in profits because they've got all these fixed costs in the factories, whether they're selling cars or not. Russ, thank you very much indeed. Just before we go, let me update you on these reports about the possibility of that minerals deal, the rare earth minerals deal that we've talked about for a few months between Ukraine and the US. A senior Ukrainian official has told BBC News that Ukraine's economy minister,

is on the way to Washington right now to sign an agreement. We don't have the full details of it. The official said it was now up to Washington to determine whether it goes ahead today or not. Leaks suggest this might include US access to the energy infrastructure in Ukraine, the oil and gas set up, as well as precious minerals. Follow this on the live page at bbc.com slash news. From me, Andrew Peach, and the team here on World Business Report, thank you for being with us.

Asking the right questions can greatly impact your future, especially when it comes to your finances. So if you're looking for a financial advisor you can trust, certified financial planner professionals are committed to acting in your best interest. That's why it's got to be a CFP. Find your CFP professional at letsmakeaplan.org.