Global Recession Risks Surge as Tariffs Intensify
J.P. Morgan has raised its forecast for a global recession to 60%, up from 40%, as the Trump administration’s sweeping tariffs spark concerns about slowing global growth. With China retaliating by imposing its own tariffs on U.S. goods, the risk of a full-blown trade war has sent shockwaves through financial markets, leading brokers to revise their forecasts. The trade policy uncertainty and its impact on business confidence have become key drivers of global recession fears.
Economic Forecasts Adjusted in Response to Tariffs
The brokerage’s revised forecast reflects growing concerns that disruptive U.S. policies, particularly the recent tariff hikes, are negatively affecting the global economic outlook. “Disruptive U.S. policies have been recognized as the biggest risk to the global outlook all year,” J.P. Morgan said in a Thursday note, adding that the country’s trade policy had turned less business-friendly than expected. The firm highlighted that the economic effects of these policies are likely to be amplified by retaliatory tariffs, declining U.S. business sentiment, and disruptions to global supply chains.
Other Firms Join the Recession Chorus
Other financial institutions are also raising their recession probabilities. S&P Global now estimates a 30-35% chance of a U.S. recession, up from 25% in March. Goldman Sachs similarly increased its recession probability to 35% from 20%, citing weaker economic fundamentals. HSBC analysts noted that the recession narrative is gaining traction, although they believe much of the risk is already “priced in,” with equity markets implying a 40% chance of a recession by the end of the year.
Economic Growth Outlook Weakened
Several other major research firms, including Barclays, BofA Global Research, Deutsche Bank, and UBS, have also warned of higher risks of a U.S. recession if Trump’s tariffs remain in place. Barclays and UBS even suggested that the U.S. economy could contract, with some analysts forecasting economic growth to be as low as 0.1% to 1% this year. Following Trump’s tariffs, Wall Street’s main indexes have faced significant losses, with the S&P 500 down over 8% so far this year, reflecting investor anxiety about the economic fallout from the trade war.
Stock Market Adjustments Following Tariff Announcements
In response to the deteriorating economic outlook, several brokerages, including Barclays, Goldman Sachs, and RBC, have slashed their year-end targets for U.S. stocks. UBS downgraded its recommendation on U.S. equities to “neutral” from “attractive,” while Capital Economics lowered its target for the S&P 500 to 5,500, the most pessimistic forecast among major brokers. Other firms, such as RBC, followed suit with a target of 5,550, reflecting growing concerns about the economic impact of tariffs.
Interest Rate Cuts: A Potential Reprieve?
As tariffs threaten to slow economic growth, some analysts expect the Federal Reserve to take action by cutting interest rates to boost economic activity. J.P. Morgan believes that the shock from the tariffs will be “modestly dampened” by the prospect of further rate cuts, and Goldman Sachs now predicts three rate cuts by the end of the year, up from two before Trump’s tariff announcement. Other firms, including Nomura and UBS, also expect one to three rate cuts in response to the economic challenges posed by the trade war.
Forecasts for Future Rate Cuts
Citigroup has reiterated its forecast of 125 basis points of rate cuts starting in May, while J.P. Morgan expects two 25-basis point cuts. Investors are now pricing in up to 100 basis points of rate cuts in 2025, according to data compiled by LSEG. These anticipated rate cuts reflect growing concerns about the U.S. economy’s ability to weather the economic disruption caused by the ongoing trade war and the broader impact of Trump’s tariff policies.
Conclusion: A More Pessimistic Outlook for the U.S. Economy
The growing uncertainty around U.S. trade policy has led to significant adjustments in economic forecasts, with recession fears rising and growth prospects dimming. As tariffs continue to take a toll on global markets, analysts are increasing their recession probabilities and lowering stock market expectations. While the possibility of rate cuts offers some hope for economic support, the full impact of the tariffs and their duration remain key factors in determining the trajectory of the U.S. economy in the coming months.
