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Goldman Sachs has raised the probability of a U.S. recession to 45% from 35%, marking the second increase in a week as investment banks grow more cautious amid an escalating trade war. The firm had initially set its forecast at 20% early last week, but concerns over President Donald Trump’s planned tariffs and their potential impact on the global economy prompted the revision.
Banks Adjust Recession Risk Assessments
Shortly after, Trump announced steeper-than-expected tariffs, triggering a global market sell-off. In response, at least seven major investment banks have adjusted their recession risk assessments. J.P. Morgan now places the likelihood of a U.S. and global recession at 60%, citing concerns that the tariffs could drive up U.S. inflation and provoke retaliatory measures—such as those already announced by China.
On Sunday, Goldman Sachs revised its U.S. economic growth forecast for 2025 downward to 1.3% from 1.5%. That remains higher than Wells Fargo Investment Institute’s (WFII) 1% growth projection, while J.P. Morgan anticipates a 0.3% quarterly contraction.
How Are Markets Reacting to Trump’s Tariffs?
Global stock markets experienced a third consecutive day of declines on Monday in response to Trump’s sweeping tariffs, fueling concerns of a global trade war and a slowdown in economic growth, particularly in the United States.
Dimon also voiced apprehension that the tariffs could weaken the U.S.’s economic alliances worldwide. “I am hoping that after negotiations, the long-term effect will have some positive benefits for the U.S. My most serious concern is how this will affect America’s long-term economic alliances,” he said.
While he did not specify particular nations, Dimon warned that economic fragmentation of this kind could benefit the U.S.’s geopolitical competitors.
What is a Recession and How Does it Affect Jobs?
A recession is commonly defined as two consecutive quarters (six months) of negative Gross Domestic Product (GDP) growth. However, the National Bureau of Economic Research (NBER), which officially determines recessions, provides a broader definition: “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
GDP contractions alone do not necessarily indicate a recession. The overall business cycle fluctuates, and recessions impact multiple aspects of the economy, including consumer spending, mortgage rates, employment, and stock markets. Fortunately, most recessions tend to be short-lived.
What Are the Key Signs of a Recession?
The NBER uses several factors to determine whether the U.S. economy is in a recession:
- Decline in real GDP
- Decline in real income
- Rising unemployment rates
- Slowed industrial production and retail sales
- Decrease in consumer spending
Rather than relying on a single indicator, the NBER takes a holistic approach, recognizing that economic factors are interconnected. A sharp drop in GDP can affect consumer spending and employment, leading to broader economic challenges.
How Do Recessions Affect Jobs?
One of the most immediate and severe impacts of a recession is job loss. As businesses face declining revenues, many resort to layoffs, hiring freezes, and reduced working hours to cut costs. Industries such as retail, hospitality, and manufacturing tend to be among the hardest hit.
During a recession, job openings become scarce, making it difficult for unemployed individuals to find new employment. Companies also tend to delay wage increases and reduce benefits, impacting the financial well-being of workers even if they retain their jobs.
The unemployment rate typically rises during a recession, often triggering government intervention in the form of stimulus packages, unemployment benefits, and economic relief measures. However, recovery can take time, and job markets may remain sluggish even after the recession ends.
Also Read: Explained: How US Tariffs On Bangladesh Are Disrupting The World’s Second-largest Garment Industry
