Goldman retracts recession forecast following Trump’s tariff pause

Goldman Sachs has withdrawn its recession forecast shortly after US President Donald Trump announced a 90-day tariff "pause" on dozens of trading partners.

The revised projection came yesterday (9 April) amid a broader surge in the market, as investors responded positively to the announcement following a period of extreme volatility in US markets, reports CNBC. 

According to the White House, Trump's decision means a universal 10% tariff will be applied to more than 75 trading partners while negotiations continue. However, the pause does not apply to China, which continues to face tariffs of 125% amid an intensifying trade war between Washington and Beijing.

Just 30 minutes prior to Trump's announcement, Goldman had raised the likelihood of a recession, forecasting a 65% probability of one within the next 12 months and predicting a 1% GDP decline this year.

"Together, these tariffs are likely to sum to something close to our previous expectation of a 15 [percentage point] increase in the effective tariff rate," Goldman's chief economist Jan Hatzius wrote in a Wednesday afternoon (9 April) note to clients.

"As a result, we are reverting to our previous non-recession baseline forecast with GDP growth of 0.5% and a 45% probability of recession."

Hatzius added that sector-specific tariffs are still expected. 

"We think the White House is unlikely to quickly reverse most of the new tariffs, but our probability of recession would decline if it does," the firm had previously stated.

Risk remains despite Goldman's U-turn

Despite Goldman Sachs scaling back its recession forecast, concerns about the US economic outlook persist among analysts.

Goldman now projects just 0.5% GDP growth in 2025, with a 45% chance of recession in the next 12 months. Economists from other institutions have also revised down growth forecasts and raised inflation estimates following the steep tariffs announced on 2 April, as per Bloomberg's report. 

Neil Dutta, head of US economics at Renaissance Macro, maintained his recession call after Wednesday's developments, saying, "All that has happened is that we have gone from a nonlinear risk to a more linear one. That's a relief but this is not a situation where anyone can ring the 'all-clear' bell."

Citigroup economists echoed a similar caution. 

"Pausing reciprocal tariffs excluding China does not mean the US economy has avoided a slowdown in growth and rise in inflation," wrote Andrew Hollenhorst and Veronica Clark.

JPMorgan Chief US Economist Michael Feroli noted that the Federal Reserve will likely delay rate cuts until September instead of starting in June. 

"The drag from trade policy is likely to be somewhat less than before, and thus the prospect of a recession is a closer call. However, we still think a contraction in real activity later this year is more likely than not," he said.

"Even with the China share of imports falling to trivial levels, the increase in tariffs represents a tax increase of over $300 billion since Inauguration Day," Feroli added.