Illinois economy declines 2.2% in early 2025, one of biggest drops in U.S.

Illinois’ latest drop in gross domestic product shows broader issues with the state. The state’s real GDP has been struggling for years.

Illinois’ real gross domestic product fell by 2.2% between January and March of 2025, according to latest data from the U.S. Bureau of Economic Analysis.

The national GDP declined 0.5% in the same period. Illinois ranked 42nd for its real GDP growth rate in the first quarter of the year.

The sharp drop is not isolated. It is part of a long-term pattern of stagnation.

Since the first quarter of 2019, Illinois’ gross domestic product has only grown by 5.2% – fourth-slowest in the nation. The national economy grew by 15.1% during that time.

Why did Illinois GDP drop?

The first quarter drop was broadly based. Significant losses came from agriculture, utilities, finance and insurance sectors, all major industries in Illinois. Agricultural output fell sharply nationwide, hitting states in the Midwest and Great Plains the hardest. Illinois, with a large farm economy, felt that acutely.

Analysts attribute  a part of the contraction to federal trade policy shocks, which disrupted supply chains and global markets. Illinois companies responded with supply chain adjustments, proactive pricing strategies and some foreign exporter concessions. “Real final sales to private domestic purchasers,” also came in lower than expected.

What a GDP decline means for Illinoisans

Real GDP, a key indicator of economic performance, measures the inflation adjusted value of all goods and services produced by people and businesses, including salaries of workers. Changes in real GDP are closely related to changes in living standards.

For Illinoisans, a 2.2% drop can mean:

• • Increased difficulty paying rent, mortgage and credit card debt.
  • Higher risks of default for many families and businesses.
  • Slower wage growth and fewer job opportunities.

Broader implications

While analysts say this first quarter GDP drop may be temporary, the size of Illinois’ declines underscores how vulnerable Illinois is to a broader recession.

Analysts at JP Morgan have raised odds of a global recession to 60% in the near future, while analysis from CNBC says Illinois is the seventh-most at-risk state in a recession. They point to high pension liabilities, high exposure to trade wars and lowest-in-the-nation credit ratings as primary reasons for Illinois’ predicament. The state also maintains a higher-than-average unemployment rate at 4.6%.

The root cause of Illinois’ long-standing economic underperformance is an unfriendly business environment because of high taxes resulting from a constantly mismanaged budget.

Illinois’ state and local tax burden is the highest in the nation. The state also levies the third-highest state corporate income tax in the nation and the state’s tax code is among the least friendly for businesses in the Midwest. Other highly taxed states have similarly struggled with growth. New York, which has the second-highest state and local taxes has only grown 10%, while Connecticut has grown by only 8.5%.

This burden has undermined Illinois’ competitiveness, discouraging job growth and driving investment elsewhere. Since 2020, the state has lost at least 10 major headquarters for large companies such as Caterpillar, Boeing, Tyson, TTX and Citadel. This has contributed to the slow growth.

Illinois continues to foster an environment that makes it harder for Illinoisans to find work and reduces wage growth prospects for those who are employed.

Illinois has many advantages such as its diverse economy, central location and strong infrastructure. To take advantage of this, Illinois must focus on strengthening its fiscal position. High spending has led to higher taxation to cover costs. By controlling expenditure increases, the state can lower its dependency on tax hikes.

State leaders should enact spending caps to match economic growth and lower discretionary spending. They can also use surpluses to return extra tax collections to taxpayers.

At the same time, the state should reduce its heavy regulatory burden. Illinois has twice as many regulations as the national average, making it harder for new business creation, limiting job growth.

Smarter budgeting and a more competitive business environment are essential if Illinois hopes to attract investment, create jobs and create an environment that supports economic growth.