Prediction Markets Signal Economic Downturn for U.S. in Early 2025

According to Cointelegraph, prediction platforms Polymarket and Kalshi are indicating a bearish outlook for the U.S. economy. As of April 29, both platforms forecast an economic contraction for the first quarter of 2025, based on upcoming economic data. This marks a significant shift from the positive growth trend the U.S. has experienced since 2022, potentially signaling the onset of a recession. The sentiment change is notable as prediction markets had previously anticipated positive growth for the U.S. economy. On April 29, Kalshi, a U.S. derivatives exchange, saw consensus estimates for Q1 U.S. growth plummet from approximately 0.5% to -0.4% within a day. Similarly, Polymarket bettors now place the odds of a U.S. economic contraction in Q1 at around 70%, a stark contrast to their mostly favorable outlook just a day earlier. This shift in economic sentiment coincides with the election of Liberal Mark Carney as Canada's prime minister, who has pledged a more aggressive stance in the ongoing trade conflict with the U.S., Canada's second-largest trading partner. The prediction markets are closely watching the April 30 report from the U.S. Bureau of Economic Analysis, which will provide official measures of the country's gross domestic product (GDP). This report is expected to offer insights into the effects of U.S. President Donald Trump's contentious trade policies. Prediction markets operate by allowing users to trade contracts linked to specific events, with prices adjusting based on anticipated outcomes. In 2024, these markets proved as reliable as traditional polling, accurately predicting Trump's election victory and his party's control of the U.S. House and Senate. The economic outlook is further complicated by U.S. President Donald Trump's announcement on April 2 of plans to impose extensive tariffs on U.S. imports. Although the president has delayed implementing tariffs on certain countries, the threat of a global trade war remains. This uncertainty has already impacted U.S. economic indicators. In April, the Philadelphia Federal Reserve Manufacturing Index, which surveys 250 U.S.-based manufacturers monthly, reported the steepest decline in activity since 2020. Analysts suggest that factories are preparing for the potential cost increases associated with Trump's tariff plans, which could elevate production expenses for manufacturers.