Is a Recession Still Coming? Goldman Sachs Thinks Unlikely After Changing Its Prediction

In a surprising turn of events, Goldman Sachs has retracted its recession forecast for the U.S. economy, citing a recent pause in tariffs announced by President Donald Trump. 

This shift in outlook comes just hours after the initial prediction was made, highlighting the volatility and unpredictability of economic forecasts amid rapidly changing trade policies.

Goldman Sachs Initial Recession Prediction

On April 9, 2025, Goldman Sachs economists predicted a 65% chance of a recession occurring within the next 12 months. This forecast was primarily based on the implementation of new tariffs that took effect on April 2, which were expected to strain economic growth and consumer spending. 

The announcement came shortly before 1 p.m. ET, indicating that the firm anticipated significant negative impacts on the economy due to these trade policies.

The analysts pointed to several factors contributing to their initial assessment:

1. Increased Tariffs

The tariffs imposed on various countries, particularly China, were expected to lead to higher consumer prices and reduced demand.

2. Economic Slowdown

Concerns about a potential slowdown in economic activity were heightened by tightening financial conditions and declining business sentiment.

However, just minutes after the prediction was made, Trump announced a temporary 90-day pause on most reciprocal tariffs, which led Goldman Sachs to reassess its earlier forecast.

Reversal of Goldman Sachs Prediction

At 1:18 p.m., Trump posted on Truth Social about the tariff pause, which included relief for over 75 countries that had refrained from retaliating against U.S. goods. 

The announcement prompted Goldman Sachs to reverse its recession call by 2:10 p.m., stating that they were reverting to their previous non-recession baseline forecast.

This rapid turnaround underscores how sensitive economic forecasts can be to changes in government policy. 

Goldman Sachs now projects only a 0.5% growth in GDP for 2025 but maintains a 45% chance of recession within the next year due to ongoing uncertainties surrounding trade relations and economic conditions.

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3 Implications of Trump’s Tariff Policies

The implications of Trump's tariff policies are substantial:

1. Chinese Goods Tariff Increases Hike

While the pause offers temporary relief, Trump has maintained a sharp increase in tariffs on Chinese goods—raising them by 125%. This could lead to inflationary pressures if implemented long-term.

2. Unclear Global Trade Dynamics

The uncertainty surrounding U.S. trade policy continues to complicate global trade dynamics. Economists warn that while short-term clarity may exist, long-term effects remain uncertain as negotiations with various countries continue.

3. Consumer Behavior

Reports indicate that consumer sentiment is deteriorating, with some Canadians reportedly boycotting travel to the U.S., reflecting broader concerns about economic stability.

Experts caution that while the tariff pause may provide short-term optimism for markets, it does not eliminate the risks associated with ongoing trade tensions and their potential impact on economic growth.

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Market Reaction and Economic Outlook

The stock market reacted positively to the news of the tariff pause, with equities experiencing a brief rally following Goldman Sachs' retraction of its recession forecast. However, analysts remain cautious about the overall economic outlook:

1. Financial Conditions

Despite the positive market response, financial conditions have tightened significantly due to previous tariff announcements and uncertainty surrounding future policies.

2. Inflation Risks

The risk of inflation persists as tariffs could lead to increased prices for consumer goods, impacting purchasing power and overall economic activity.

Goldman Sachs’ economists noted that while they have adjusted their recession probability downward due to the tariff pause, persistent risks remain. They emphasized that if tariffs are reinstated or expanded, it could lead to higher chances of recession once again.

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Broader Economic Context

The current economic environment is characterized by several key factors:

1. Inflation Pressures

Inflation in the U.S. has been a significant concern for policymakers and consumers alike. Rising prices for goods and services could undermine consumer confidence and spending.

2. Global Economic Slowdown

Many economists are warning of a potential global economic slowdown as trade tensions escalate and central banks grapple with rising inflation rates.

3. Interest Rate Adjustments

The Federal Reserve has paused its interest rate cuts but may need to resume them if economic conditions worsen significantly. Analysts predict that rate cuts could occur later this year if inflationary pressures ease without compromising growth.

These factors contribute to an increasingly complex landscape for investors and policymakers as they navigate uncertainties in both domestic and global markets.

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Conclusion

Goldman Sachs' retraction of its recession prediction following President Trump's tariff pause highlights the fluid nature of economic forecasting in response to government policy changes. While the immediate market reaction has been positive, underlying risks associated with inflation and global trade dynamics remain significant concerns.

As we move forward into 2025, it will be essential for investors and policymakers alike to keep a close eye on developments related to tariffs and consumer sentiment. The balance between fostering economic growth while managing inflation will be critical in shaping the future trajectory of the U.S. economy.

In summary, while optimism may prevail in light of recent developments, caution is warranted as uncertainties linger in both domestic and international arenas.

FAQ

1. What led Goldman Sachs to retract its recession prediction?

Goldman Sachs retracted its recession prediction after President Trump announced a temporary pause on most new tariffs, which altered their outlook on potential economic impacts from increased trade tensions.

2. What is Goldman Sachs' current GDP growth forecast?

Goldman Sachs now projects only a 0.5% growth in GDP for 2025 while maintaining a 45% chance of recession within the next year due to ongoing uncertainties surrounding trade policies.

3. How do tariffs impact consumer prices?

Increased tariffs can lead to higher prices for imported goods, which may reduce consumer purchasing power and overall demand, potentially slowing down economic growth.

4. What are analysts predicting regarding interest rates?

Analysts anticipate that if inflation pressures ease without negatively impacting growth, the Federal Reserve may resume interest rate cuts later this year as part of its monetary policy strategy.

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