Goldman Sachs Group Inc (NYSE:GS, ETR:GOS) has increased its estimate of the likelihood of a US recession within the next 12 months to 35%, up from the previous 20%, as escalating tariffs threaten economic growth, fuel inflation, and elevate unemployment rates.
The adjustment is the bank's highest recession probability since the regional banking crisis two years ago.
The Wall Street firm also revised its economic forecasts, lowering the 2025 GDP growth projection to 1% and raising the year-end unemployment rate expectation by 0.3 percentage points to 4.5%.
Additionally, Goldman Sachs anticipates core inflation to reach 3.5% by the end of the year, an increase from the prior estimate of 3%.
The catalyst for these adjustments is the anticipated intensification of President Donald Trump's trade policies. Trump has indicated that new tariffs, potentially affecting all trading partners, are set to be announced on April 2. Goldman Sachs now expects the average US tariff rate to rise by 15 percentage points in 2025, reflecting a more aggressive approach to "reciprocal" tariffs.
The bank's economists attribute the increased recession risk to a sharp decline in household and business confidence, coupled with statements from White House officials suggesting a greater willingness to tolerate near-term economic weakness in pursuit of trade policy objectives. Consumer sentiment has deteriorated, with the University of Michigan's survey indicating a significant rise in the percentage of Americans expecting higher unemployment rates.
In response to these economic pressures, Goldman Sachs projects that the Federal Reserve will implement three interest rate cuts this year, up from the previously anticipated two, to mitigate the adverse effects of the trade measures.