Goldman Sachs has updated its economic outlook and warned of increasing inflation, higher US tariffs, along with greater risk of recession. It also outlined the possibility of a US recession in the coming 12 months at 35%, up from its earlier estimate of 20%. The reasons cited for the increase are lowering confidence in business and consumer, weak economic fundamentals and indications that White House officials may be prepared to accept short term pain for attaining policy goals.
“While sentiment has been a poor predictor of activity over the last few years, we are less dismissive of the recent decline because economic fundamentals are not as strong,” Goldman Sachs stated in its report. The bank has also underlined that real income growth has decelerated remarkably and is anticipated to average just 1.4% in 2025.
US tariff projections raised
The investment bank has also raised its US tariff projections for the second time this month, now expecting a 15% tariff rate in 2025. The anticipated tariff hike is likely to fuel inflation, with Goldman Sachs predicting core PCE inflation to hit 3.5% by the end of 2025 which is significantly higher than current levels and well above the Fed Reserve’s 2% target.
The firm has also revised its GDP growth projection for 2025 from 1,5% to 1.0% on a quarter-over-quarter basis. This revision has been made due to likely impacts of trade tensions and weak early-year economic data.
Moreover, the unemployment rate is estimated to surge to 4.5% by the end of 2025. This projection has been made given the slow economic growth and uncertainty looming over businesses. Early indications of strain are also pointed out in the report, as the latest GDP tracking calculated for Q1 has already dropped to just 0.2%.