U.S. Recession Alert: Goldman Sachs Hikes Odds to 45%

Goldman Sachs has increased the likelihood of a U.S. recession within the next 12 months to 45%, from 35% previously, according to Reuters.  This follows after President Donald Trump announced significant tariffs, which have raised market fears and financial uncertainty.

Bears gained a strong grip on Dalal Street on Monday, April 7, as the Indian share market saw a huge selloff at the opening bell. The Sensex plummeted more than 4,000 points and nifty more than 5% in the morning trade.

Why the Recession Risk is Rising

Goldman stated the sudden increase in policy uncertainty and tighter financial conditions will tend to slow business spending. Firms might now be less inclined to invest in growth and hiring. 

Goldman had upped the chance of recession only a month before from 20% to 35%, but recent events caused them to reassess the number again. Other investment houses also issued warnings. J.P. Morgan now estimates the probability of a U.S. and worldwide recession at 60%, as markets sense the effect of the trade war.

Markets Reaction to Tariff 

Stocks have plummeted over the last few days. The S&P 500 dropped more than $5 trillion in value over the course of just two trading days. Investors are concerned that increasing costs from tariffs will harm consumers and businesses and, potentially, lead the economy into a downturn.

Analysts are drawing parallels with the 2008 financial crisis, but they point out that the economy is not currently as weak. Nevertheless, warning bells are sounding.

What Central Banks Can Do

As risks rise, central banks such as the Federal Reserve, European Central Bank, and Bank of England can reduce interest rates again to help the economy. They just wait and observe the development.

As the trade war drags on, economists say it could trigger higher inflation, lower earnings, and softer demand. These are all the telltale signs of a slowdown.