The U.S. administration recently imposed tariffs on numerous countries, and China retaliated with its own tariffs on U.S. goods, heightening worries about an escalating trade war and disrupting global financial markets.
J.P.Morgan now sees a 60% chance of a global recession by the end of the year, up from 40% previously. The brokerage highlighted that disruptive U.S. policies have emerged as the primary risk to the global economy this year. Their report noted that the country’s trade policies have turned less favorable for business than expected, and the effect could be amplified by retaliatory tariffs, a decline in U.S. business sentiment, and supply-chain disruptions.
Other firms, including S&P Global, have also raised their recession odds for the U.S. For instance, S&P Global increased its subjective probability of a U.S. recession to 30%-35%, up from 25% in March. Goldman Sachs, before the tariff announcement, raised the probability of a U.S. recession to 35%, citing weaker economic fundamentals compared to previous years.
HSBC suggested that the recession narrative is gaining momentum, but noted that some of this risk is already factored into the market. According to their equity market indicator, the chance of a recession is already priced at about 40%.
Several other firms, including Barclays, BofA Global Research, Deutsche Bank, RBC Capital Markets, and UBS, have also warned of a higher risk of a U.S. recession, especially if the new tariffs remain in place. Barclays and UBS warned that the U.S. economy could enter contraction territory, with forecasts for economic growth ranging between 0.1% and 1%.
Despite these concerns, some analysts believe the Federal Reserve may use the opportunity to cut interest rates to stimulate economic activity. J.P.Morgan expects the impact of the tariff shock to be "modestly dampened" by the potential for further rate cuts. Goldman Sachs forecasts three rate cuts by the end of the year, compared to previous expectations of two, while other firms like Nomura and RBC expect one or three cuts, respectively. Citigroup has also forecasted 125 basis points of cuts starting in May.