Goldman Sachs has increased its estimation of a US recession occurring in the next 12 months to 45 per cent. This adjustment aligns with other investment banks revising their forecasts as concerns over a trade war intensify, following extensive tariffs imposed by US President Donald Trump.
The probability of a recession has been raised from a previous estimate of 35 per cent due to a significant tightening in financial conditions and a rise in policy uncertainty. These factors are expected to reduce capital spending more than initially assumed by Goldman.
Recession Risk Factors
- Tightening in financial conditions
- Rise in policy uncertainty
- Reduced capital spending
Goldman had previously increased the likelihood of a US recession from 20 per cent to 35 per cent last month, citing that economic fundamentals were not as robust as in previous years.
Other Investment Banks' Assessments
Last week, several investment banks adjusted their recession risk forecasts, with JP Morgan assessing the odds of a US and global recession at 60 per cent, up from an earlier estimate of 40 per cent. The brokerage attributes this to disruptive US policies, which have been identified as the primary risk to the global economic outlook throughout the year.
According to the firm, the US trade policy has become less business-friendly than expected. These policies are likely to be exacerbated by retaliatory tariffs, a decline in US business sentiment, and disruptions in supply chains, it said.
Expert Opinions on Recession Probability
S&P Global also revised its "subjective" probability of a US recession, increasing it to between 30 per cent and 35 per cent, from 25 per cent in March.
HSBC analysts noted that the recession narrative is gaining momentum, although some of this is already accounted for in market prices. Their recession probability indicator suggests that equities are already pricing in around a 40 per cent chance of a recession by year-end.
Several research firms, including Barclays, BofA Global Research, Deutsche Bank, RBC Capital Markets, and UBS Global Wealth Management, have also cautioned that the U.S. economy faces an elevated risk of slipping into a recession this year if President Trump's new tariffs remain in effect.
Potential Economic Impact
- Barclays and UBS warned that the US economy might enter contraction.
- Other analysts predict economic growth to be between 0.1 per cent and 1 per cent.
US equity markets had rallied in November following President Trump's re-election on expectations of business-friendly policies. However, after Trump's tariff announcement in January, Wall Street's main indexes have experienced a challenging period, with the benchmark S&P 500 down over 8 per cent so far this year.
(With Reuters inputs)