Goldman Sachs Raises Recession Odds to 45% Amid Trade War Concerns

In a significant update, Goldman Sachs has revised its estimation of the likelihood of a U.S. recession, now placing it at 45%—an increase from a previous forecast of 35%. This adjustment marks the second revision within a week, reflecting an urgent response to escalating tensions in global trade. The bank’s economists are particularly worried about new tariffs imposed by the Trump administration, which are expected to have a chilling effect on the economy.

Escalating Trade Tensions and Economic Forecasts

Goldman Sachs is not alone in its concerns; a number of investment banks are echoing similar sentiments regarding the heightened risk of recession. The latest predictions result from a combination of factors, including:

• Increased tariffs and potential retaliatory measures from other countries.
• A significant tightening of financial conditions.
• Consumer boycotts that could further dampen economic activity.

Last week, Goldman Sachs had already raised the recession probability from 20% to 35% after news of new reciprocal tariffs began to surface. Just days later, President Trump confirmed these fears by announcing even steeper tariffs, which triggered a selloff in global markets.

Expert Insights on Economic Implications

The team’s lead economist, Jan Hatzius, emphasized that if the tariffs set to take effect on April 9 proceed as planned, the effective tariff rate could increase by approximately 20 points. Such a rise would likely depress capital spending more than previously anticipated, leading to a greater chance of an economic downturn.

The economists noted, "If these tariffs materialize, we will likely need to adjust our forecast to reflect a recession."

Other Major Banks Join the Recession Forecasts

The anxiety surrounding a possible recession is palpable, with several leading investment firms adjusting their forecasts:

• JPMorgan has elevated its recession risk to 60%, citing fears of inflation in the U.S. and retaliatory tariffs from countries like China, which has already proposed a 34% tax on imports from the U.S.
• Morgan Stanley has also weighed in, stating that while a recession is not currently in their main projections, it has become a plausible scenario.

Adjusted Economic Growth Predictions

In addition to raising recession odds, Goldman Sachs has also downgraded its growth outlook for the U.S. economy for 2025 to 1.3%, down from 1.5%. Furthermore, the bank has revised its Q4-to-Q4 GDP growth forecast for the same year to 0.5% from 1%. Despite these adjustments, Goldman’s projections still surpass those from Wells Fargo Investment Institute, which is predicting a growth rate of only 1%.

As the economic landscape continues to shift, investors and policymakers will be watching closely for any further developments. The ongoing trade war and its implications for global markets remain critical issues that could shape the future of the U.S. economy.

For more details on recent economic trends, check out our analysis on the impact of trade policies on the global market.