The Wall Street bank has raised the likelihood of a downturn to 35% ahead of the Trump administrations massive tariff roll-out

The US economy is facing an increasing risk of a recession as escalating tariffs threaten to slow growth, push inflation higher, and increase unemployment, Goldman Sachs has warned.

On Sunday, the Wall Street bank raised its estimate of a recession over the next 12 months to 35%, up from its previous projection of 20%.

US President Donald Trump is expected to introduce a massive plan of country-specific tariffs across all American trading partners on Wednesday, calling the upcoming roll-out "Liberation Day." Trump has already imposed tariffs on aluminum, steel, and automobiles, as well as raising tariffs on all imports from China. He also announced last week that a 25% tariff on cars imported to the US will take effect the following day.

"Higher tariffs are likely to boost consumer crisis," Goldman Sachs warned, adding that rising prices will eat into inflation-adjusted income. It raised its end-of-2025 inflation forecast to 3.5%, up from 2.8% last month, increased its unemployment prediction to 4.5%, the highest since October 2021, and lowered its GDP growth forecast to 1%, the weakest since 2020.

Overall, Goldman now assigns a 35% probability of a recession within the next 12 months, up from 20% in its previous outlook.

While some critics warn that Trump's tariff strategy risks a global trade war, provoking retaliation by major trading partners such as China, Canada and the EU, he has insisted that the tariffs are needed because the American economy had been "ripped off by every country in the world."

The EU is likely to be hit harder than the US, Goldman warned, projecting that it could slip into a technical recession later this year. "We estimate that our new tariff assumptions will lower euro area real GDP by an additional 0.25% compared to our previous baseline, for a total hit to the level of GDP of 0.7% compared to a no-tariff counterfactual by end-2026."

Many EU companies, including German car manufacturers and French luxury goods companies and wine, champagne, and spirits makers, rely on exports to the US for up to 20% of their income and are likely to be hit hard by the tariffs.

The EU has vowed to provide a "timely, robust and calibrated" response to Washington's plans, which experts warn could suppress economic output, push prices higher, and escalate into a full-blown trade war.

(RT.com)