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US faces 45% risk of recession next year, S&P 500 index 3.4% down

  • By Al Mayadeen English
  • Source: News websites
  • 7 Apr 2025 18:49
5 Min Read

Goldman Sachs has revoked its expectations for economic growth in 2026, instead raising the risk of economic recession in the US as Trump's tariffs and their consequences settle.

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  • The logo for Goldman Sachs appears above a trading post on the floor of the New York Stock Exchange on July 13, 2021 (AP)
    The logo for Goldman Sachs appears above a trading post on the floor of the New York Stock Exchange on July 13, 2021 (AP)

Goldman Sachs took back its forecast for economic growth in the United States in 2026, warning that the US is facing a growing risk of recession in the next year.

Goldman Sachs has revised its 2025 growth forecast downward from 1.0% to 0.5% due to mounting concerns that Donald Trump may implement significantly higher tariffs than previously anticipated in a note titled “US Daily: Countdown to Recession.”

In the same note, the firm also raised 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.”

The new tariffs scheduled for April 9 are now set to raise the effective tariff rate by more than initially anticipated, as the White House, contrary to expectations of announcing a more aggressive stance before retreating, appears to be moving forward with higher rates instead, Goldman analysts explain.

In response to the White House’s announcement of its “reciprocal” tariff and the Chinese government’s declaration of retaliatory measures on US exports, financial conditions tightened more aggressively than anticipated, partly because both announcements turned out to be more forceful than expected, Goldman Sachs analysts explained.

They added that it indicates a rebound in the sensitivity of financial conditions to incremental tariffs, shifting away from the relatively moderate levels seen in early 2025 and moving closer to the more pronounced reactions observed during the 2018–2019 trade war.

An additional 0.1–0.2 percentage point drag on GDP growth in 2025 may result from reduced foreign tourism to the US and consumer-led boycotts abroad, effects that had not been factored into earlier projections that had already assumed forceful retaliation by foreign governments, the analysts noted.

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Lastly, Goldman's analysts indicated that policy uncertainty has surged to levels well beyond those seen during the previous trade war. This uncertainty's effects are expected to be significantly larger this time around, as a greater number of US companies are likely to be exposed not only to uncertainty surrounding a broader and more substantial set of US and foreign tariffs but also to potential ambiguity in other policy areas such as fiscal and immigration policy.

S&P 500 index is down 3.4%

At the start of trading on Monday, the S&P 500 index is down 3.4%, pushing it into bear market territory as it falls more than 20% below its record high, while the Dow Jones Industrial Average opens with a drop of 1,191 points, or 3.1%, bringing it to 37,123 points, and the tech-heavy Nasdaq index is down 3.9%.

Traders are likely to respond to warnings from firms like Goldman Sachs, which highlight that the ongoing trade war heightens the risk of a US recession, with no indication that Donald Trump plans to back down.

Bloomberg notes that Wall Street has seen a decline of approximately 13% in value since Thursday, marking the third-worst three-day drop in history, following the early days of the Covid-19 pandemic in March 2020 and the 2008 financial crisis.

Trump won't back down from tariffs despite market crash: Axios

On April 6, Axios reported that senior officials in the Trump administration showed no intention of backing down from the president's sweeping new tariff plan, even after global markets suffered massive losses. Investors saw over $6 trillion wiped out on Thursday and Friday alone, raising alarm that Monday could bring even greater turmoil unless the administration steps in to ease trade tensions.

Despite those warnings, Trump's economic team appeared across major Sunday talk shows to reaffirm that the tariff policy will move forward as planned. There will be no delays, no last-minute adjustments, and certainly no reversals.

"The tariffs are coming. He announced it, and he wasn't kidding. The tariffs are coming; of course they are," Commerce Secretary Howard Lutnick said on CBS's Face the Nation.

Meanwhile, on NBC's Meet the Press, Treasury Secretary Scott Bessent dismissed any suggestion that the administration was open to revising the approach: "No. No, no, no. I think that we are going to have to see the path forward. Because, you know, after 20, 30, 40, 50 years of bad behavior, you can't just wipe the slate clean."

Their remarks come as concern deepens among major investors, including Ackman's comments.

  • United States
  • Goldman Sachs
  • tariffs
  • Donald Trump

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