Goldman Sachs raised the probability of a U.S. recession to 35 per cent from 20 per cent and said it expects more rate cuts by the Federal Reserve, as President Donald Trump’s tariffs roil the global economy and upend financial markets.
The brokerage also lowered the world’s largest economy’s GDP growth forecast for 2025 to 1.5 per cent from 2.0 per cent and projected three interest rate cuts each from the U.S. Fed and the European Central Bank from its previous expectation of two each.
Mr. Trump said on Sunday his reciprocal tariffs, to be announced this week, would include all countries and not a more limited number, rattling financial markets globally over fears of an economic slowdown.
In a separate note, Goldman also cut its year-end target for the S&P 500 index for a second time this month to 5,700 from 6,200, the lowest among Wall Street brokerages, followed by Barclays’s target at 5,900.
Goldman expects the average U.S. tariff rate to rise 15 percentage points in 2025, 5 percentage points more than its prior baseline forecast and predicts Mr. Trump to announce reciprocal tariffs that average 15 per cent across all U.S. trading partners on April 2.
“Almost the entire [tariff rate] revision reflects a more aggressive assumption for ‘reciprocal’ tariffs,” Goldman wrote in a note on Sunday.
The brokerage estimates the Fed to consecutively cut interest rates in July, September and November, compared with its previous forecast of two cuts in June and December.
Europe is expected to fare worse than the U.S., Goldman warned, as it projected the region’s economy could enter into a “technical” recession this year.
The brokerage forecasts “little” growth for the rest of 2025, with non-annualized growth of 0.1 per cent, 0.0 per cent and 0.2 per cent in the second, third and fourth quarter, respectively.
The brokerage expects Mr. Trump to implement a reciprocal tariff on the European Union amounting to 15 percentage points, raising the total effective tariff rate by 20 percentage points.
“We estimate that our new tariff assumptions will lower euro area real GDP by an additional 0.25 per cent compared to our previous baseline, for a total hit to the level of GDP of 0.7 per cent compared to a no-tariff counterfactual by end-2026,” Goldman said in a separate note on Sunday.
However, in a more “downside” scenario of tariffs, Goldman sees a total hit of 1.2 per cent to the economy which could push the euro area into a technical recession in 2025, compared with a no-tariff scenario.
The brokerage said it now expects the ECB to deliver an additional cut in July, along with its previous forecast of a rate cut each in April and June.
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