Key points
- Growth forecast slashed to 1.7pc
- Goldman’s first below-consensus outlook in two and a half years
- Morgan Stanley’s Gapen moves his forecast down to 1.5pc
ISLAMABAD: Goldman Sachs downgraded its outlook for US economic growth as President Donald Trump’s trade policy has proved to be more aggressive than expected, risking higher prices and tighter financial conditions, according to CNBC.
The Wall Street firm slashed its growth forecast on gross domestic product, a measure of all the goods and services produced across the sprawling US economy in 2025, to 1.7 per cent from a 2.4 per cent estimate at the start of the year.
This marks Goldman’s first below-consensus outlook in two and a half years, according to CNBC.
Stocks tumble
According to Fox Business, US stocks tumbled on Monday, with concerns about the effects of President Donald Trump’s tariffs on economic growth spooking investors.
The Dow Jones Industrial Average fell 890.01 points, or 2.08 per cent, while the Nasdaq Composite and S&P 500 slid 4 per cent and 2.69 per cent, respectively. The Dow and the S&P 500 saw their worst day since Dec. 18; the tech-heavy Nasdaq had its worst day since September 2022.
Trump on Sunday declined to explicitly rule out a full-blown recession for the US economy this year, telling Maria Bartiromo in a “Sunday Morning Futures” exclusive interview that the country will see a “period of transition” as his policies take effect, according to Fox Business.
“I hate to predict things like that,” he said of a recession. “There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing… it takes a little time, but I think it should be great for us.”
According to yahoo!finance, Goldman Sachs is the latest Wall Street firm to grow more concerned about the path forward for the US economy as President Trump’s tariff policies become reality.
In a research note on Monday, Goldman’s economics team led by Jan Hatzius slashed its 2025 GDP forecast to 1.7 per cent from 2.4 per cent.
Assumptions “more adverse”
“The reason for the downgrade is that our trade policy assumptions have become considerably more adverse,” Hatzius wrote.
In its note, Goldman also boosted its projection for the Fed’s preferred inflation gauge to end the year at three per cent, up from a prior call in the mid two per cent range.
The reason for the downgrade is that our trade policy assumptions have become considerably more adverse.” — Goldman’s economics team head Jan Hatzius
Hatzius noted these updates mark the first time in about two and a half years that his team has projected GDP growth below Bloomberg consensus data, which currently calls for GDP growth north of two per cent this year.
Goldman is the latest in a slew of forecasting teams that now see a more dire outlook for the US economy¸ according to yahoo!finance.
Growth forecast
According to yahoo!finance, in a note to clients on Friday, Morgan Stanley chief US economist Michael Gapen moved his 2025 growth forecast down to 1.5 per cent from 1.9 per cent previously.
Gapen also sees the Fed’s preferred inflation gauge — the “core” Personal Consumption Expenditures index — ending the year higher, projecting core PCE to end 2025 at 2.7 per cent, up from a previous projection of 2.5 per cent.
In its note on Monday, Goldman’s team said it now sees the average US tariff rate rising by 10 percentage points this year, twice their previous forecast and five times the level seen during Trump’s first administration.
The three levers
Tariffs weigh on the overall economic outlook through three key levers, Hatzius wrote.
First, the new duties are expected to push up consumer prices and, therefore, cut real income for consumers. Second, they usually come alongside tighter financial conditions. And third, the uncertainty surrounding the tariff implementation will likely prompt businesses to “delay investment.”
Hatzius believes the combination of slower growth and sticky inflation can still leave room for the Federal Reserve to cut interest rates twice this year in June and December.
But for now, Trump’s policy uncertainty likely keeps the central bank holding rates steady, according to yahoo!finance.
Talk of recession
And while still not the base case, discussions of recession have also picked up from various sources.
Former PIMCO CEO Mohamed El-Erian told Yahoo Finance Monday he now sees a 25 per cent to 30 per cent chance the US economy enters recession this year, up from a 10 per cent chance seen before the Trump tariff bonanza began, according to yahoo!finance.
