The U.S. economy contracted 0.3% in the first quarter of 2025, according to a Commerce Department report released on the morning of April 30. It marks the first negative gross domestic product (GDP) growth since 2022 and comes in the wake of President Donald Trump’s tariffs announcement in early April.
The shrinking GDP numbers have raised fears of an imminent economic recession in the U.S. Those concerns are reflected in the spike in recession odds at prediction markets like Kalshi, where people can trade real money on whether or not the U.S. economy will experience a recession in 2025.
In the hours after the announcement of the GDP decrease, Kalshi odds that there will be a recession this year rose to 71%, a nearly 15% increase from the day before.
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According to the Commerce Department report released by the Bureau of Economic Analysis (BEA), GDP shrank at an annual rate of 0.3% in the first three months of 2025 due to an increase in imports and a decrease in government spending, as well as a “deceleration” of U.S. consumer spending.
The Q1 numbers reflect on the first three months of Trump’s second presidential term and were released the day after widespread coverage of Trump’s first 100 days in office. The President kicked off Q2 of 2025 with his so-called “Liberation Day” on April 2, when he announced increased tariffs would be placed on trade coming from several countries.
Trump had threatened that tariff increases were coming in the weeks leading up to his announcement, which economists say likely fueled the rise in imports in Q1, as business sought to get ahead of any potential cost increases. According to the BEA report, the increase in imports is subtracted from the GDP calculation and was one of the primary factors in the decrease.
Although Trump paused many of the tariffs soon after his Liberation Day announcement, the ensuing uncertainty and lingering threat of reinstatement caused many economists to predict that a recession may be forthcoming.
Many prediction market services allow users to bet on whether or not there will be a recession in the U.S. and other related economic markets, just as they offer markets on who will win an NBA playoff game or who will be named the new Pope.
At Kalshi, the market asking simply “Recession this year?” has attracted more than $2.1 million in trade volume, with users able to buy either “Yes” or “No.”
The “Yes” odds at Kalshi began spiking in the days following Trump’s April tariffs announcement, getting as high as 66% before leveling off somewhat. The increase on April 30 to 71% marked the highest pro-recession odds since the market was first made available in August of last year.
The odds surge is largely based on the unexpected GDP growth decrease. At Kalshi, if back-to-back quarters see negative growth and that is verified by the BEA, the outcome of the market resolves to “Yes.” In other words, if Q2 doesn’t see positive GDP growth, the U.S. will be in a recession and the “Yes” traders win.
Prediction markets are also offering contracts on other markets related to the U.S. economy’s performance, including a few directly tied to the question of whether or not there will be a recession.
With Kalshi’s “When will the next US recession start?” market, users can pick a quarter and then choose “Yes” or “No” on whether or not the next recession will start then. The outcomes will be determined and verified by the National Bureau of Economic Research (NBER), which began defining the start and stop dates of U.S. recessions in the 1970s.
For this market, which opened March 19, the quarter chosen for a recession to begin is actually the quarter prior to two consecutive quarters of negative GDP growth. For example, if the NBER determines that the height of U.S. business activities prior to a recession was Q4 2024, then a contract picking “Yes” for Q4 2024 to mark the start of the recession would win. Unsurprisingly, this is the market that has seen the biggest uptick in trades since the April 30 GDP report, jumping from 8% odds to 16%.
Kalshi is also offering markets on U.S. GDP growth for Q2 2025, which will be announced in late July. Users can choose from a range of growth percentage predictions, from above +2.0% to -2.0%, and pick “Yes” or “No.”
Kalshi’s forecast on the afternoon of April 30, based on the price of recent trades, is that the GDP for Q2 will be +0.03%, a notable swing from a recent forecast low of -0.05% earlier in the day. At the same time, the best odds (89%) were on a “Yes” pick that the Q2 GDP numbers will be above -1.5%.
The ride may be a bumpy one for the foreseeable future, but the potential hedge opportunities are vast.
