This is an audio transcript of the FT News Briefing podcast episode: ‘Honey, I shrunk the economy’
Marc Filippino
Good morning from the Financial Times. Today is Thursday, May 1st, and this is your FT News Briefing. Microsoft showed up Wall Street yesterday, and Spain is still trying to figure out what caused this week’s massive blackout. Plus, the American economy contracted in the first quarter, but that’s not the whole story. I’m Marc Filippino, and here’s the news you need to start your day.
[MUSIC PLAYING]
Microsoft’s first-quarter earnings beat analyst expectations. The tech giant yesterday said its cloud division increased revenue 20 per cent from a year ago — that’s thanks to continued demand from artificial intelligence. Investors were happy with the better than expected news. Microsoft’s shares jumped as much as 6 per cent in after-hours trading.
[MUSIC PLAYING]
The US economy contracted last quarter by a third of a per cent. Yesterday’s GDP reading came in just below economist expectations and it’s the first time since 2022 that it shrunk. Here with me now is the FT’s US economics editor Claire Jones. Hey Claire.
Claire Jones
Hi, Marc.
Marc Filippino
All right, so do me a favour and tell me about some of the dynamics at play that dragged down GDP last quarter.
Claire Jones
So primarily, this is a story about tariffs. Because businesses in the US are anticipating very steep levies on their imports, they frontloaded their purchases. So they bought a lot of goods from abroad. And the result of that has been that we’ve seen the first contraction in GDP for quite some years. However, the figures also showed when you looked at the figures for consumption and investment, the domestic demand in the US remained quite resilient as of the first three months of this year.
Marc Filippino
Right, so GDP is comprised of a few factors, one of those things being consumption, the other ones being exports and imports, and there were some strong elements. Is that what I’m hearing?
Claire Jones
Yeah.
Marc Filippino
And just for the record, President Trump posted on Truth Social saying that the weaker parts had nothing to do with tariffs. Claire, I wanted to ask you: how big of a deal is this GDP report? I think when we hear that the economy is contracting, that sounds pretty scary.
Claire Jones
So I think there’s two ways to look at this. If you look at the health of the domestic economy, the US still looks pretty strong. People are still spending. Businesses are still investing as of the first three months of this year. However, there’s another message here. And that’s that the tariffs have already caused a lot of economic chaos. Now remember, this is for the first three months of the year. We didn’t really hear about the reciprocal tariffs until April. So we’re going to get a lot of fuzziness in the data. And it is the expectation of most economists that the chaos that we’ve seen this quarter from the tariffs is going to continue. And it’s going to affect not just those inputs read-ins, but also kind of weigh on domestic spending as well.
Marc Filippino
So this GDP contraction was because people were stockpiling ahead of tariffs. Some of those tariffs have now gone into place. So I’m wondering if economists expect this dynamic to continue.
Claire Jones
Well, not necessarily. What we’ve seen in recent weeks is, if you look at data for, say, the Port of LA, the biggest port on the west coast, you see a big slump in the volumes of cargoes landing. That suggests that we’ll see a lot fewer imports in the second quarter. And the impact of that is that imports are way less on growth. And what we might also see is consumers buying those stockpiles of goods, which will lift GDP in the process. So we’ll kind of perhaps get the opposite sort of mirror effect of this going into the second quarter.
Marc Filippino
Do you have a sense of whether or not this is going to impact the next interest rate decision by the Federal Reserve?
Claire Jones
This will not have any immediate impact on the Fed whatsoever. Fed officials have been very, very clear that we’re going to see a lot of noise in the Q1 GDP figure and that the overall figure is going to tell us very little about the sort of read they want on the domestic economy in order to decide whether or not to cut interest rates. Now, what Fed officials are probably going to be looking at a little bit more is what data say on prices and on inflation and on people’s expectations of inflation. So they’ll stand the ground, they’ll still be on wait-and-see mode.
Marc Filippino
Claire Jones is the FT’s US economics editor. Thanks, Claire.
Claire Jones
Thanks a lot, Marc.
[MUSIC PLAYING]
Marc Filippino
It took weeks of tough negotiating, but the US and Ukraine signed a minerals deal last night. The economic partnership will give Washington access to the country’s critical minerals and natural resources. It’ll also include a “reconstruction investment fund”. President Trump insisted on it as a way for Ukraine to repay the US for past aid. The deal comes as Trump struggles to broker a peace deal between Russia and Ukraine. He had pledged to deliver this early in his second term as president.
[MUSIC PLAYING]
Spain and Portugal had a total power outage this week. Spain’s electricity grid collapsed on Monday and took Portugal’s with it. Power is back now, but it was the biggest outage in Europe in two decades. And it’s raising questions about Europe’s grid infrastructure and renewable energy systems. Here to talk about it is the FT’s clean energy correspondent Rachel Millard. Hey, Rachel.
Rachel Millard
Hi.
Marc Filippino
So first, quickly remind me what happened here. What did people in Spain and Portugal see on Monday?
Rachel Millard
So Monday morning was pretty normal, and then suddenly at about 12.30, there was a huge power cut affecting huge amounts of Spain and Portugal. Trains were shut down, offices had to close, people couldn’t buy things in the shops, hospitals had to switch to backup generators. It was a really serious, huge event.
Marc Filippino
So what do we know so far about what could have caused the blackouts? Anything, Rachel?
Rachel Millard
So it’s not very clear. There were lots of theories originally ranging from atmospheric conditions causing vibrations on the power line to a possible cyber attack. Those have now more or less been ruled out and they’re still investigating the incident. What we do know is that at about 12.33pm, there was a very large drop in frequency on Spain’s power grid, which normally has to be kept at a constant rate. And that when you have large drops, that triggers power stations to automatically cut off, but it’s not clear what triggered that initial drop in the frequency. Spain’s power grid operator has spoken about a loss of generation, but the sequence of events is quite unclear. What’s cause and what’s effect is still being worked out.
Marc Filippino
Are there any major differences between Spain’s electricity system? How does it compare to other countries?
Rachel Millard
Spain has quite a high proportion of renewables online, so wind and solar power, and like many other countries also has gas-fired power stations as well. So it’s not atypical particularly in Europe, but it does have a high proportion of renewals and that is something that people are certainly looking at as to whether that played a role in the outages. It’s fair to say that it can be more complicated to manage a system which has got lots of renewables online, because they’re obviously more volatile than other power sources. So it’s certainly the case that, in general, renewables can create issues, but we really don’t know what happened yet here. That hasn’t stopped a huge amount of speculation and indeed politicians are starting to ask questions about the trajectory of Spain and other countries’ electricity systems.
Marc Filippino
Yeah, I was going to ask what happens next? What can we expect from here?
Rachel Millard
So most importantly, there’s investigations going on by the electricity system operator in order to find out exactly what happened. I think they’re trying to bring in data from lots of local distribution companies. So at some point, we should get a sort of full comprehensive report about what actually went wrong. There’s also an investigation at EU-wide level into what happened, which will be led by independent system operators outside of Spain. It has, as I say, sparked a sort of political debate around the role of renewables. But more broadly, I think it would just refocus minds on the importance of investing in stable and resilient electricity systems and making sure you have all the technology in place to provide backup for when things start to go wrong.
Marc Filippino
That’s the FT’s Rachel Millard. Thanks, Rachel.
Rachel Millard
Thank you.
[MUSIC PLAYING]
Marc Filippino
England holds local elections today. It’s the first time ever that five parties are set to be competitive. Nigel Farage’s Reform UK party, the Liberal Democrats and the Greens are all expected to make gains. It’s the latest sign that the century-long duopoly of Labour and the Tories is disintegrating. The Conservatives, in particular, are bracing for heavy losses. Tory figures are predicting the party will lose hundreds of councillors in seats that it won in 2021. Things have, of course, changed since then. Last year, the Tories suffered their worst ever defeat in a general election. Kemi Badenoch said yesterday that she will stay on as Conservative leader even if her party suffers big losses. But there are growing concerns within the party about Badenochs’ leadership.
[MUSIC PLAYING]
You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
