Goldman Sachs Says Recession More Likely In US Now, Flags Inflation Concerns

The investment bank placed the probability of a recession in the US at 35 per cent, up from its previous forecast of 20 per cent, highlighting worries about surging inflation.

The lender also highlighted that real income growth slowed considerably and is expected to average just 1.4 per cent in 2025.

Source : Freepik

Goldman Sachs revised its economic outlook, signalling increased risks of a potential recession in the United States over the next year. The investment bank placed the probability of a downturn at 35 per cent, up from its previous forecast of 20 per cent.

Key factors contributing to this shift included declining business and consumer confidence, weakening economic fundamentals, and indications that the White House may be willing to endure short-term economic strain to achieve policy objectives, reported The Financial Express.

In its latest report, Goldman Sachs noted, “While sentiment has been a poor predictor of activity over the last few years, we are less dismissive of the recent decline because economic fundamentals are not as strong."

The lender also highlighted that real income growth slowed considerably and is expected to average just 1.4 per cent in 2025.

Higher Tariffs to Intensify Inflationary Pressures

In addition to economic slowdown concerns, the bank also revised its US tariff projections, now expecting a 15 per cent tariff rate in 2025. This marked the second upward revision in a month, with analysts warning that increased trade barriers could contribute to inflationary pressures.

According to Goldman Sachs, core PCE inflation is projected to reach 3.5 per cent by the end of 2025—well above current levels and significantly exceeding the Federal Reserve’s 2 per cent target.

The investment bank also adjusted its GDP growth forecast for 2025, lowering it from 1.5 per cent to 1.0 per cent on a quarter-over-quarter basis. The downward revision was attributed to the economic impact of trade disputes and sluggish early-year data.

Adding to economic concerns, the unemployment rate is expected to rise to 4.5 per cent by the end of 2025, as slow economic growth and business uncertainty weigh on the labour market. The report also pointed to early signs of strain, with Q1 GDP tracking estimates already declining to just 0.2 per cent.