Goldman cuts US recession odds after US-China trade deal
By Michele Maatouk
Date: Tuesday 13 May 2025
(Sharecast News) - Following the US-China tariff deal announced on Monday, Goldman Sachs has lifted its S&P 500 return and earnings forecasts to incorporate lower tariff rates, better economic growth, and less recession risk than it previously expected.
"The Trump administration announced a 90-day pause in the retaliatory tariffs imposed in April, which will leave the US and China with 2025 tariff increases of +30pp and +15pp, respectively," the bank said.
"While we had expected a de-escalation, the rate is lower than the +54pp tariff hike we had pencilled into our baseline.
"We expect this move to leave the US effective tariff rate increase at +13pp, assuming that likely sectoral tariffs on pharmaceuticals and semiconductors take effect, slightly below our previous assumption of +15pp.
"In light of these developments and the meaningful easing in financial conditions over the last month, we are raising our 2025 growth forecast by 0.5pp to 1% Q4/Q4 and reducing our 12-month recession odds to 35%."
Goldman had previously said it saw a 45% chance of recession.
The bank also said that its new three- and 12-month returns forecasts are for 1% and 11% growth, indicating an S&P 500 level of 5,900 and 6,500, up from 5,700 and 6,200 previously. The six-month return forecast is for 4% growth and the S&P 500 target rises to 6,100 from 5,900.
The bank said that under its new economic baseline, the rationale for rate cuts shifts "from insurance to normalization" as growth remains somewhat firmer, the unemployment rate rises by somewhat less, and the urgency for policy support is reduced.
Goldman now expects the Federal Reserve to begin a series of three cuts later than it had previously expected - December versus its prior expectation of July - and to implement them at every other meeting rather than sequentially.
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