Goldman Sachs Cuts Global Growth Forecasts, Expects 15% Tariff Hike

Goldman Sachs has made significant downward revisions to its economic forecasts, signaling a more cautious outlook on the global economy. The investment bank has adjusted its predictions for various economic indicators, reflecting growing concerns over trade tensions and economic stability.

The most notable change involves the bank's forecast for tariffs. Goldman Sachs now expects the U.S. to implement an average 15% reciprocal tariff on all trading partners starting April 2, which will eventually decrease to 9%. This adjustment, combined with existing tariffs and additional industry-specific tariffs, will increase the overall tariff level by 15 percentage points, surpassing the bank's previous estimate of a 10 percentage point increase. This move is anticipated to have a negative impact on the market, as recent surveys by the International Monetary and Financial Committee (IMFC) indicate that most investors expect the effective tariff rate to rise by only about 9 percentage points, with a mere 4% anticipating an increase of 15 percentage points or more.

In the U.S., Goldman Sachs has raised its forecast for the core Personal Consumption Expenditures (PCE) inflation rate at the end of 2025 from 3.0% to 3.5%. Concurrently, the bank has lowered its projection for year-over-year GDP growth in the fourth quarter of 2025 by 0.5 percentage points to 1%. The unemployment rate prediction for the end of 2025 has also been increased by 0.3 percentage points to 4.5%, indicating a potential rise in joblessness. The probability of a U.S. economic recession within the next 12 months has been raised to 35%, up from the previous estimate of 20%. In response to these economic challenges, Goldman Sachs anticipates that the Federal Reserve will implement a series of interest rate cuts in July, September, and November.

For the S&P 500 index, Goldman Sachs has adjusted its expectations for the index's performance over the next three and twelve months. The revised targets are -5% and +6% respectively, down from the previous forecasts. This adjustment reflects the increased uncertainty and risk associated with the current economic environment. According to historical patterns of stock market declines, the S&P 500 index could potentially drop by approximately 25% from recent market peaks. If the 35% recession probability materializes, the index could further decline by 17% from current levels, reaching a trough of around 4600 points.

In Europe, the higher tariffs are expected to further reduce the eurozone's real GDP by an additional 0.25%, bringing the total GDP reduction to 0.7%. Goldman Sachs now predicts sluggish economic growth for the remainder of 2025, with non-annualized growth rates for the second, third, and fourth quarters at 0.1%, 0.0%, and 0.2% respectively. The European Central Bank is anticipated to lower interest rates in April, June, and July, with the final rate expected to be 1.75%, down from the previous 2%.