US Goldman Sachs expects more cuts from Fed and ECB, warns higher recession risk
Photo illustration shows a smartphone screen displaying the Goldman Sachs logo with a blurred background featuring the same logo and stock market data in Brazil, on Nov. 15, 2021. (Adobe Stock Photo)
U.S.-based investment bank Goldman Sachs revised its economic outlook for the U.S. and the eurozone, warning of increased recession risks in both, primarily driven by escalating tariff tensions, Reuters reported on Monday.
The bank also expects deeper interest rate cuts from the U.S. Federal Reserve and the European Central Bank (ECB) and lowered its growth forecasts for both regions.
The revision followed remarks from former U.S. President Donald Trump, who announced on Sunday that his administration plans to introduce a new round of reciprocal tariffs affecting all U.S. trading partners.
The announcement triggered volatility in global financial markets as investors grew wary of a potential global economic slowdown.
Recession risks rise in US
Goldman Sachs raised the probability of a U.S. recession within the next 12 months to 35%, up from its previous estimate of 20%. The bank also lowered its 2025 GDP growth forecast for the U.S. to 1.5%, down from 2.0%.
Citing expectations of more aggressive trade policies, the bank anticipated the average U.S. tariff rate will rise by 15 percentage points in 2025—five points higher than previously forecast. The bank predicts that Trump will announce across-the-board reciprocal tariffs averaging 15% on April 2.
“Nearly all the revision in our tariff forecast stems from a more assertive assumption regarding reciprocal tariffs,” Goldman stated in a research note on Sunday.
In response to the increased economic risk, the bank now expects the Federal Reserve to implement three consecutive interest rate cuts in July, September, and November, marking a shift from its earlier projection of two cuts in June and December.
Additionally, Goldman downgraded its year-end target for the S&P 500 index—from 6,200 to 5,700—its second downward revision in a month, among the lowest on Wall Street.
Europe faces sharper slowdown
The outlook for Europe appears even more concerning in Goldman Sachs’ report, as the analysts expect the eurozone to enter a technical recession in 2025, projecting minimal quarterly growth: 0.1% in Q2, stagnation in Q3, and a modest 0.2% expansion in Q4.
The bank also anticipates that Trump’s proposed reciprocal tariffs will impose an additional 15 percentage point tariff burden on European Union exports, pushing the EU’s effective average tariff rate up by 20 percentage points.
“We estimate that these new tariff assumptions will reduce euro area real GDP by a further 0.25% relative to our previous baseline.
By the end of 2026, the total economic impact could amount to a 0.7% reduction compared to a no-tariff scenario,” the bank said in a separate note.
In a more severe downside scenario involving prolonged tariff escalations, the bank warned that the eurozone could experience a 1.2% gross domestic product (GDP) contraction, which would almost certainly plunge the region into a technical recession next year.
In response, Goldman now expects the ECB to deliver an additional interest rate cut in July, supplementing previously forecast cuts in April and June.
