Goldman Sachs has revised its recession probability for the U.S. economy over the next year, increasing it from 20% to 35%. This substantial uptick comes as uncertainty looms over trade policies, diminished consumer and business sentiment, and a tempered growth outlook. Additionally, the bank has updated its forecasts for 2025, highlighting grave risks associated with the aggressive tariffs proposed by President Trump.

Drivers of the Shifted Outlook

• Concerns Over Trade Policy:
  Goldman Sachs has heightened its tariff expectations, now forecasting a 15% tariff rate in 2025. Experts foresee a new set of tariffs potentially inciting duties reaching up to 20% against major trading partners, which may inflate input costs and disrupt trade flows, straining growth further.

• Rising Inflation Pressures:
  Current projections foresee core personal consumption expenditures (PCE) inflation climbing to 3.5% by the year’s end, notably above the Federal Reserve’s target of 2%. Increased tariffs are anticipated to drive up prices, thereby amplifying inflationary pressures.

• Growth Slowdown Estimates:
  The firm has adjusted its GDP growth prediction for 2025 down to 1%, a significant reduction from the previous 1.5% forecast. This downturn is attributed to the combined impacts of trade dynamics, weaker consumer spending, and diminished business sentiment.

Shifting Risk Environment

Goldman Sachs analysts point out that the decrease in growth expectations, coupled with declining sentiments from households and businesses, evokes a broader acceptance within the White House of short-term economic weaknesses to attain long-term policy aims. The bank’s revised forecast serves as a stark warning that aggressive trade measures may carry profound repercussions for economic stability.