Goldman Sachs Raises U.S. Recession Risk to 35% Amid Trump Tariff Uncertainty

Goldman Sachs has significantly increased its forecast for a potential U.S. recession over the next 12 months, citing growing concerns over escalating trade tensions and weakening economic sentiment.

In a note released on Sunday, the investment bank lifted its recession probability to 35%, up from a previous estimate of 20%. The revision reflects rising risks tied to President Donald Trump's proposed tariff hikes, a softening in both consumer and business confidence, and a more subdued baseline for economic growth.

Trade Policy Fears Prompt Inflation, Growth Worries

Goldman Sachs analysts warned that Trump's expected announcement of aggressive reciprocal tariffs on 2 April—referred to by him as "Liberation Day"—could significantly impact the economic outlook. Reports suggest the former president is considering across-the-board tariffs of up to 20% against key trading partners.

As a result, the bank now anticipates that U.S. tariff rates could average 15% in 2025, representing the second upward revision in just one month.

This expected rise in tariffs is likely to place upward pressure on inflation, with Goldman forecasting core PCE inflation to reach 3.5% by the end of 2025. That figure is notably above both current levels and the Federal Reserve’s 2% target.

Lower Growth Forecast for 2025

In tandem with the inflation outlook, Goldman Sachs has also reduced its 2025 GDP growth projection to 1%, down from the previous estimate of 1.5%. The bank attributed this to a combination of trade policy uncertainty, slowing consumer spending, and a more cautious business investment environment.

“The increase in our recession probability reflects not only a weaker growth starting point but also recent signs of deteriorating sentiment among households and companies,” the bank’s economists noted. “Moreover, the White House has indicated a greater tolerance for short-term economic pain to achieve long-term policy objectives.”

Markets on Edge Ahead of Tariff Announcement

The forecast comes as investor anxiety intensifies ahead of Trump's 2 April trade policy reveal, which could mark a pivotal moment for global markets. A broad imposition of reciprocal tariffs would likely disrupt international trade flows, raise costs for consumers and businesses, and further complicate the U.S. inflation landscape.

With inflation proving more persistent and policy uncertainty rising, Goldman’s updated projections serve as a warning signal that economic turbulence may lie ahead.

(Sources: investing.com, reuters.com, ChatGPT)