Goldman Sachs has slashed its US economic growth forecast for 2025 to 1.7%, down from an earlier estimate of 2.4%, as concerns mount over the impact of President Donald Trump’s escalating trade war. The revision comes amid increasing warnings from Wall Street that ongoing tariff disputes could trigger a global recession.
Stock Market Sell-Off
Monday saw a sharp sell-off in US equities, with the Nasdaq plunging 5% and the S&P 500 falling 4.6%. Morgan Stanley now predicts that the S&P 500 could decline by another 5% in the coming months if Trump continues to intensify his trade war strategies.
Economic Warnings from Wall Street
Jan Hatzius, Chief Economist at Goldman Sachs, highlighted three key reasons behind the downgrade:
- Tariffs increase consumer prices, reducing real income.
- They tighten financial conditions.
- Trade policy uncertainty delays corporate investment.
Goldman Sachs now places the likelihood of a US recession at 20%, while JP Morgan warns that a full-blown trade war could impact economies worldwide, particularly if Trump imposes tariffs on Europe.
Trump’s Response
When asked about a potential recession, Trump remained evasive, stating, “There is a period of transition because what we’re doing is very big.” His Commerce Secretary, Howard Lutnick, dismissed recession concerns, claiming the US economy is poised for unparalleled growth.
US Economic Contraction
The Federal Reserve Bank of Atlanta now projects a 2.4% contraction in US GDP for the first quarter of 2025, a stark shift from 2.3% growth in the previous quarter. Analysts suggest this decline is partly due to businesses stockpiling imports before tariffs take effect, which may cause a temporary dip before a potential recovery.
Global Repercussions
Paul Dales of Capital Economics noted that while the US economy faces significant uncertainty, most other countries will experience headwinds rather than recessions. However, Canada and Mexico could fall into recession if Trump imposes the threatened 25% tariffs.
UK’s Contingency Plans
In response to potential US tariffs, analysts at Policy Exchange have urged the UK government to build strategic reserves of essential goods, such as microchips and medicines, to safeguard against supply chain disruptions.
