Summary
- GS Foresees Three Rate Cuts from Fed and ECB This Year
- Adjusts S&P 500 Target Downward Again
- Raises U.S. Recession Probability to 35% from 20%
- Predicts Eurozone Could Enter Recession in 2025
Goldman Sachs has increased the likelihood of a U.S. recession to 35%, up from 20%, while also predicting further rate cuts by the Federal Reserve. This adjustment comes as President Donald Trump’s tariffs disrupt global trade and destabilize financial markets.
The firm has lowered its U.S. GDP growth forecast for 2025 to 1.5%, down from the previous estimate of 2.0%. Additionally, it now anticipates three interest rate reductions from both the Federal Reserve and the European Central Bank, revising its earlier prediction of two cuts each.
Trump announced on Sunday that his upcoming reciprocal tariffs would affect all countries, rather than a limited group, causing widespread market concerns about a potential economic downturn.
Goldman also revised its year-end target for the S&P 500 index to 5,700, down from 6,200, marking the second reduction this month. This new target is the most bearish among major Wall Street firms, with Barclays’ target standing at 5,900.
Federal Reserve rate Cuts Expected
Goldman now expects U.S. tariff rates to rise by 15 percentage points in 2025, an increase of 5 percentage points from its earlier forecast. The firm anticipates that Trump will introduce reciprocal tariffs averaging 15% across all U.S. trading partners by April 2.
“Almost all of the tariff rate adjustment reflects a more aggressive stance on ‘reciprocal’ tariffs,” Goldman stated in a report on Sunday.
The bank now predicts the Fed will implement consecutive rate cuts in July, September, and November, revising its previous expectation of cuts in June and December.
Europe Faces Greater Challenges than U.S.
Goldman anticipates Europe will experience more severe economic challenges than the U.S., projecting that the eurozone could enter a “technical” recession this year.
The firm expects minimal growth in the euro area for the rest of 2025, with non-annualized growth of 0.1%, 0.0%, and 0.2% for the second, third, and fourth quarters, respectively.
Goldman also forecasts that Trump will impose reciprocal tariffs on the European Union, raising the effective tariff rate by 20 percentage points.
“Our new tariff assumptions suggest an additional 0.25% reduction in euro area real GDP compared to our previous forecast, bringing the total GDP impact to 0.7% by the end of 2026,” Goldman noted in a separate report.
In a more pessimistic scenario, Goldman predicts the eurozone’s economy could be further impacted, with a 1.2% decline in GDP, potentially pushing the region into a technical recession in 2025, compared to a no-tariff scenario. As a result, the firm now expects the ECB to introduce an additional rate cut in July, alongside its earlier anticipated cuts in April and June.
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