Global Recession Coming? Investment banking giant Goldman Sachs has increased the likelihood of a U.S. recession to 45%, marking its second upward revision in a week. Previously, the firm had placed the probability at 35%, up from an earlier estimate of 20%.

Trade Wars and Global Economy

The adjustment comes as multiple investment banks signal concerns over an escalating trade war and its potential impact on the global economy. Last week, Goldman Sachs raised its forecast from 20% to 35% after former President Donald Trump imposed new reciprocal tariffs. Just days later, Trump confirmed those fears with steeper-than-expected duties, triggering a global market selloff.

According to a research note dated April 6, economists led by Jan Hatzius increased the 12-month recession probability to 45%, citing several risk factors, including worsening financial conditions, foreign consumer boycotts, and rising policy uncertainty.

Why Is Goldman Sachs Raising Concerns of Global Recession ?

The investment bank highlighted key reasons for its revised forecast:

  • Tighter Financial Conditions: “A sharp tightening in financial conditions” is making borrowing more expensive and affecting investment decisions.
  • Foreign Consumer Boycotts: International backlash to U.S. tariffs could further hurt American exports and corporate revenues.
  • Depressed Capital Spending: “A continued spike in policy uncertainty is likely to depress capital spending by more than we had previously assumed,” the economists noted.

The report also warns that if the April 9 tariffs are fully implemented, the effective U.S. tariff rate could rise by approximately 20 percentage points, even after accounting for potential country-specific agreements.

“If so, we expect to change our forecast to a recession,” Goldman Sachs economists stated.

Investment Banks Warn of Growing Global Recession Risks

Since last week’s market downturn, at least seven major investment banks have raised their recession forecasts. JPMorgan has set the odds of a U.S. and global recession at 60%, warning that tariffs could fuel inflation and provoke retaliatory measures from other nations. In response, China has already imposed a 34% retaliatory tax on all U.S. imports.

Morgan Stanley, in a note dated Sunday, acknowledged that while a U.S. recession is not their baseline scenario, it is becoming an “increasingly realistic bear case.”

Alongside the rising recession probability, Goldman Sachs has also lowered its U.S. economic growth outlook for 2025. The bank now expects GDP growth to slow to 1.3% from 1.5%. Additionally, its fourth-quarter 2025 GDP growth projection has been cut from 1% to 0.5%.

While Goldman Sachs remains slightly more optimistic than Wells Fargo Investment Institute (WFII), which predicts 1% growth, JPMorgan is even more pessimistic, forecasting a 0.3% quarterly contraction.

What Defines a Recession?

A recession is commonly defined as two consecutive quarters—or six months—of negative Gross Domestic Product (GDP) growth, which measures the total value of goods and services produced within a country.

However, the National Bureau of Economic Research (NBER), the nonprofit organization responsible for officially determining U.S. recessions, uses a broader definition. According to the NBER, a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

Short-term GDP contractions do not necessarily indicate a full-blown recession. However, recessions typically affect multiple sectors, including consumer spending, mortgage interest rates, unemployment, and stock market performance. While they can have widespread economic consequences, history suggests that downturns tend to be relatively short-lived.

Also Read: Trump Tariffs: What Is A Recession And How Does It Affect Jobs?