Prediction markets are now shifting focus to Q1 2025 GDP growth after the official Q4 2024 report confirmed a 2.3% increase, aligning with prediction markets that forecasted a 94% chance for growth above 2% but falling short of 3%, which prediction markets gave a 52% chance.
Kalshi traders currently see an 82% chance that Q1 2025 GDP growth will exceed 2%, with a 49% likelihood of surpassing 2.5%. However, only 31% now expect GDP to top 3%, a steep decline from 55% just a day earlier, following the Q4 GDP release.
Holiday shopping traditionally boosts Q4 economic activity, and while it helped sustain growth in late 2024, its effects may not carry over into the new quarter. Persistent inflation concerns and high interest rates could weigh on the economy, leaving economists cautious about a significant Q1 acceleration.
“We’re still in a disinflationary mode,” Brian Bethune, an economics professor at Boston College, told Reuters. “The only remaining problem in terms of inflation is shelter.”
Despite the mixed outlook, enthusiasm in the prediction market remains strong. Although optimism for 3% growth has seemingly faded.
Understanding the Q4 result with data from holiday spending
November and December are the peak months for holiday shopping, and this past season was no exception. Retail sales data for November, a key barometer for Q4 performance, showed a 4% year-over-year increase, according to the Commerce Department. Online sales for Black Friday and Cyber Monday also set records.
Envestnet | Yodlee data reveals that all three major spending categories saw year-over-year growth during the 10 days leading up to Cyber Monday. E-commerce led the way as consumers embraced online shopping and spread out their Black Friday purchases.
Big-box retailers reported a 10% increase in spending, both on Black Friday itself and throughout the extended discount period. Even home improvement, a sector weighed down by high interest rates, showed resilience, with spending up 9% on Black Friday and 7% over the 10-day period.
At 2.3%, fourth-quarter GDP growth remained strong and largely in line with expectations, though it slowed from the 3.1% real GDP growth rate seen in the third quarter of 2024.
Potential risks bring uncertainty
Not all indicators point to smooth sailing. Persistent inflation, driven by elevated energy prices, and the Federal Reserve’s previous rate hikes could curb economic expansion.
Cooling demand in the housing market and declining home sales also pose risks, as noted in a report by Fannie Mae, where the analysts “revised downward our projection for total home sales for 2025 and 2026 to 4.89 million and 5.25 million, respectively”.
Meanwhile, turbulence in the stock market has raised concerns. A sharp selloff also took place earlier this week in overvalued tech stocks, fueled by DeepSeek and AI investing market development.
As most economic indicators showed stability, the central bankers were dedicated to the meeting. There is no clear intention of rate cuts anytime soon. The sentiment is positive but not a bullish signal for GDP number growth in near term either.
Prediction markets and economic forecasts
Platforms like Kalshi offer unique insights into economic forecasting, aggregating real-money bets from individual investors and institutions. While not always accurate, prediction markets often complement traditional methods by capturing real-time sentiment.
“Prediction markets provide valuable context, particularly during periods of uncertainty,” said Doe. Research supports their utility; a working paper by UCLA Anderson’s Mikhail Chernov and Johns Hopkins’ Vadim Elenev and Dongho Song analyzed the predictive power of these platforms during the 2024 election.
The betting data seemed to show a bit more optimism than economists’ estimates. Over 88% of Kalshi bettors believed Q4 GDP growth would exceed 2.5% in Q4 2024, in contrast to the actual result falling short, landing at 2.3%.
