Goldman Sachs has slashed its forecast for US economic growth this year, and warned there is a growing risk that America falls into recession in the next year.
Goldman has lowered its 2025 growth forecast from 1.0% to 0.5%, due to fears that Donald Trump will raise tariffs by much more than it had expected.
In a note titled “US Daily: Countdown to Recession”, Goldman also lifted its 12-month recession probability from 35% to 45%, following “a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty” following Trump’s tariff announcements.
Goldman analysts explain that they had expected the White House to announce a more aggressive tariff at first and then scale it back; instead, the new tariffs scheduled for 9 April would lift the effective tariff rate by more than expected.
They say:
First, financial conditions tightened more aggressively than we had expected in response to the White House’s announcement of its “reciprocal” tariff and the Chinese government’s announcement of its retaliatory tariffs on US exports.
This is partly because both announcements were more aggressive than expected. But it also suggests that the sensitivity of financial conditions to incremental tariffs is rebounding from the moderate levels of early 2025 toward the more outsized levels observed in the 2018-2019 trade war.
Second, our analysis of reduced foreign tourism to the US and foreign consumer boycotts suggests an additional 0.1-0.2pp hit to GDP growth in 2025. Our forecast had already assumed forceful retaliation by foreign governments, but we had not accounted for the effects of a consumer-led response.
Third, measures of policy uncertainty have spiked to levels far above those reached during the last trade war. The effects of policy uncertainty are likely to be much larger than in the first trade war because far more US companies are likely to be affected by uncertainty about the much larger and broader US and foreign tariffs this time, and some could also be affected by uncertainty about other policy areas, such as fiscal and immigration policy.
The oil price is wallowing around its lowest level in four years.
Brent crude is down 2.5% today at below $64 per barrel, a level last seen in April 2021.
Motoring bodies are pushing retailers to cut petrol and diesel prices in response.
RAC head of policy Simon Williams says:
“With oil tumbling to its lowest price for four years, drivers ought to see cuts of up to 6p a litre at the pumps ahead of the notoriously busy Easter weekend on the roads.
“As long as the barrel carries on trading around or below the $65 mark, retailers will be obliged to pass on the savings they’re benefitting from to their customers on the forecourt. The RAC believes they should be motivated to do so as they continue to be scrutinised by the Competition and Markets Authority, which only a week ago reported that it’s still concerned about a lack of competition in fuel retailing.
“Petrol should drop from its current UK average of 136p to 130p a litre and diesel from 143p to 137p. If unleaded were to fall to that level, it would be the cheapest since summer 2021. Diesel hasn’t been that low since September that year.”
The pound has slipped to a five-week low against the US dollar today, as investors continues to shun riskier assets.
Sterling is down three quarters of a cent against the dollar today, at $1.281, its weakest point since 5 March.
Traders have been piling into traditional safe-haven currencies such as the yen and the Swiss franc.
The last few days of heavy losses in the markets will have been alarming for savers and investors.
Ed Monk, associate director at investment manager Fidelity International, suggests it would be a mistake to panic.
“The launch of trade tariffs by the United States on its international partners has spooked markets and pension savers may have already seen an alarming fall in the value of their retirement fund. There are lots of reasons, however, why they may not need to worry – and why panicking now is likely to be the worst response.
“The true impact of the movements depends on how long you have until you need to access your pension money. Anyone still with many years until they need their pension money – at least 10 years – can probably afford to relax more in response to these developments. If your pension investments lose value in the short-term there will be plenty of time for those losses to be recovered. Money held in a pension cannot typically be accessed before age 55 anyway (rising to age 57 from April 2028) so there is no need to sell investments and crystalise a loss – you can just wait it out.
“What’s more, if you still have many years of pension contributions ahead of you, losses now can actually work in your favour because they allow you to buy assets at lower values. This can boost your returns in the long run.
“If you’re a bit closer to retirement the concern is that steep losses won’t have time to recover. Yet many pension savers in this position will enjoy some protection from the stock market falls because they hold a proportion of their money in lower-risk assets like Bonds and cash. After a long period in which bonds have disappointed, they have performed the role of unlikely saviour in the recent market sell-off. Fears of an economic slowdown has seen a flight to the safety of bonds pushing up prices. Many workplace pension schemes will automatically increase your allocation to bonds in the run up to retirement to protect against precisely the sudden losses for shares that we have seen this year.
“For those already in retirement with a fund still invested, temporarily reducing the amount of income taken from a pension may be a useful way to lessen the effect of market activities. If investors can push through the short-term downturn by doing this and benefit from an eventual recovery there is the chance to navigate the choppy waters without eating into your capital. Withdrawing a fixed amount in this current environment will erode savings quicker if your investments are down. If you can live off the natural yield this may be more suitable because it won’t deplete the investment itself and when the market does turn around the capital will still be there.”
Capital Economics have been trying to calculate “The economic consequences of Mr Trump” (a nod to JM Keynes’s famous articles about Winston Churchill).
Their chief economist, Neil Shearing, has been “looking for clarity in the tariffs chaos”, and warns that some of the damage will be permanent, even if Trump relents on some of his tariffs.
Quantifying the economic cost of Trump’s tariffs is challenging, with much dependent on their size, permanence and how countries retaliate.
However, even if tariff rates are negotiated down to the 10% baseline, investors can expect lower global growth, elevated US recession risks and a Fed that’s constrained by the higher inflation that these levies will fan.
Trump’s tariffs are also a major test for globalisation, though its deep roots – spanning trade, investment, and labour flows – will likely remain resilient.
Neil Birrell, chief investment officer at Premier Miton Investors, captures the mood in the markets today:
Markets are in a mess and are likely to stay that way for now. We are in a phase that anything within equities which held up well through the end of last week is getting hit today.
The volatility in currencies and commodities is making sure that there is no hiding place other than bonds, and even then, credit spreads are a concern. There are few signs of capitulation yet and nothing positive coming on the tariff front to allay worse fears of their impact on the global economy.
Although, it changes by the hour and some sort of bounce may not be far off given the scale of the equity market falls.
Donald Trump has delivered a defiant defence of the economic situation, posting this on his Truth Social account:
Oil prices are down, interest rates are down (the slow moving Fed should cut rates!), food prices are down, there is NO INFLATION, and the long time abused USA is bringing in Billions of Dollars a week from the abusing countries on Tariffs that are already in place.
This is despite the fact that the biggest abuser of them all, China, whose markets are crashing, just raised its Tariffs by 34%, on top of its long term ridiculously high Tariffs (Plus!), not acknowledging my warning for abusing countries not to retaliate. They’ve made enough, for decades, taking advantage of the Good OL’ USA!
Our past “leaders” are to blame for allowing this, and so much else, to happen to our Country. MAKE AMERICA GREAT AGAIN!
Factcheck: Trump is correct about the oil price, it’s down 2.5% today, hit by recession fears.
Interest rates, as measured by the yields on US Treasury bonds have also fallen, yes, which will cut the cost of issuing new debt.
“NO INFLATION” is pushing it, though – the CPI inflation rate rose by 2.8% in the year to February with the “food at home index” up 1.9% over the last 12 months.
And the US won’t be “bringing in” billions of dollars a week from its new tariffs, as they are paid by American companies and individuals when they import goods. The importers could choose to cut their prices, to effectively pay the tariff, but I don’t think we have proof this is happening….
But yes, China’s markets did tumble today, with the CSI 300 index losing over 7%.
After a very choppy morning, European stocks are still deep in the red – but they have also recovered some of their earlier losses.
In London, the FTSE 100 share index is now down 3.5%, or 284 points lower, at 7772 points. That would be its lowest closing level in a year, just five weeks after it hit a record high over 8,900 points!
But this is also a recovery from the plunge this morning, that saw the FTSE 100 slump by 6%.
Indeed, we now have a few risers on the FTSE 100 today – including housebuilder Taylor Wimpey, Lloyds Banking Group and gambling firm Entain.
Across Europe, the picture is less grim too. Germany’s DAX, for example, is currently down 4% – having shed 10% of its value at one stage this morning.
Investors may be cheered by the news that Wall Street is not expected to plunge quite as much as initially feared – S&P 500 futures are currently down 1.7%….
Reason to be cheerful: Morgan Stanley points out that, although the equity market is plunging, the credit market reaction has been fairly tempered, my colleague Richard Partington writes.
The usual correlation between equity market losses and bond market gains has returned – government bonds are rallying on the rush to safe havens, and amid expectations of a recession.
Morgan Stanley says corporate balance sheets have entered the latest period of turbulence in pretty good shape. That should be reassuring that the market meltdown ought not worsen further (that’s Richard’s interpretation…)
Morgan Stanley’s note says:
In the context of credit as the canary in the coal mine, we would highlight that in the recent instances where credit has played that role (the slowdowns in 2015/2018/2020, for example), there were signs of credit market excess (rising leverage, deteriorating balance sheet metrics).
In stark contrast, we are entering this period of turbulence with healthy corporate balance sheets, muted M&A/LBO activity, and little credit market excess. In addition, the last few years have seen significant inflows to credit from yield-based buyers – US life insurance companies with sticky liabilities that are unlikely to see redemptions based on market moves.
Largely for these reasons, new issue markets remain open, even for sub-IG [investment grade] borrowers. We would watch access to new issue markets, particularly for high-quality borrowers, as a barometer of credit markets freezing up.
The Bank of England’s most recent financial stability report also contains some reasons to be cheerful – globally, it found corporate and household balance sheets had remained resilient in aggregate, despite the recent dramatic increase in debt servicing costs.
The BoE said last November that UK corporate and household debt vulnerabilities remain low, explaining:
With corporate net debt to earnings ratios of around 125% – substantially below pandemic highs of 172% and post global financial crisis highs of 235%.
“This reduces the risk that indebted corporates would materially amplify a shock. However, earnings, cash reserves and debt holdings are not evenly distributed among firms, so this aggregate picture can mask vulnerabilities within particular firms and sectors.”
Although the losses of recent days have been very painful for investors large and small, the market meltdown still has a way to go to match the crash of October 1987.
Our former economics editor Larry Elliott (a veteran of a fair few market crashes) reminds me.
Then, on the Monday and Tuesday the FTSE 100 fell by 23% in two days.
The Dow dropped by 22% on the Monday. In the days before modern communication Alan Greenspan, the newly appointed Fed chair, was on a plane from Washington while the carnage was happening. When he reached his destination (Dallas from memory) he asked how the Dow had finished. Down 508 he was told.
Mistakenly, Greenspan thought that meant down 5.08 points and assumed the Dow had had a late bounce as it sometimes does after a turbulent day. His relief was short lived!
We’re well into the third day of the market meltdown after Donald Trump’s ‘Liberation Day’ tariff announcement last Wednesday.
Bloomberg have calculated that around $9.5trn has been wiped off global share prices since the US president announced new trade levies on on friends, foes, and the penguins living on barren, uninhabited volcanic islands near Antarctica.
The carnage in financial markets worsened on Monday with stressed-out investors abandoning hopes that President Donald Trump would change his tariff policy.
Stocks tumbled, taking the three-day wipeout in global equity value to about $9.5 trillion. S&P 500 equity futures signaled a 3% loss and the VIX Index spiked above 50. Europe’s Stoxx 600 tumbled 5%. Asia capped the worst day since 2008. Treasuries and the yen gained as investors sought refuge.
Jamie Dimon, the CEO of JP Morgan, has warned that Donald Trump’s new tariffs will hurt growth and drive up prices for consumers.
In his annual letter to shareholders, Dimon – one of the most influential voices on Wall Street – says:
The recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession. And even with the recent decline in market values, prices remain relatively high. These significant and somewhat unprecedented forces cause us to remain very cautious.
[Dimon is clearly correct – with Goldman Sachs lifting their US recession chances today]
In his letter, Dimon also warns that the US economy had already begun weakening before the recent tariff announcement.
In the short term, he says, tariffs will have “inflationary outcomes”, not only on imported goods but on domestic prices, as input costs rise and demand increases on domestic products.
[Reminder: tariffs are paid by the importer of foreign goods, not the overseas producer].
Dimon says:
How this plays out on different products will partially depend on their substitutability and price elasticity. Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.
