Goldman Sachs, under the guidance of economists led by Ronnie Walker and strategists led by David Kostin, has issued a pessimistic forecast regarding the U.S. economy and stock market, attributing their outlook to President Donald Trump's upcoming announcement of reciprocal tariffs on Wednesday.
The forecast stems from expectations of more aggressive tariffs, projected to average 15% across all U.S. trading partners. While these tariffs aim to address trade imbalances, they raise concerns about higher prices and consumer strain. Goldman Sachs has revised its forecast for the average tariff rate, anticipating an increase to 15 percentage points on all goods this year. Additionally, they have raised their estimate for core inflation to 3.5% by year-end and reduced their GDP growth forecast for 2025 to 1%. The firm also revised its year-end unemployment rate outlook to 4.5%, the highest level since October 2021.
Trump, referring to Wednesday as "Liberation Day," dismissed reports of implementing matching tariffs dollar-for-dollar on select countries, suggesting a broader approach by saying, "You'd start with all countries, so let's see what happens." Meanwhile, Peter Navarro, White House senior counselor for trade and manufacturing, estimated that the tariffs could generate $600 billion annually.
Consequently, Goldman Sachs has raised its probability of a recession within the next year from 20% to 35%, marking the highest estimate since the regional banking crisis two years ago. The firm also predicts that the S&P 500 benchmark will decline by 5% over the next three months, even as they maintain an expectation that the U.S. economy will avert a downturn.