Goldman Sachs has lowered its 12-month probability of a U.S. recession to 30% from a previous estimate of 35%. The bank cites a reduction in policy uncertainty tied to President Trump’s tariff decisions as a primary reason for the change, noting that clearer trade expectations have eased investor anxiety.
The revision follows a new trade framework between the United States and China that helped steady markets after the earlier imposition of tariffs—referred to in some commentary as “Liberation Day” tariffs—created volatility in April. By addressing several contentious trade issues, the framework reduced a key source of uncertainty that had been weighing on business and financial sentiment.
Significant elements of the agreement include the removal of certain Chinese export restrictions on rare earth minerals and measures that restore or protect access for Chinese students to study at U.S. universities. Those provisions are seen as meaningful because they affect strategic supply chains and the flow of talent and research collaboration, which in turn influence longer-term productivity and investment decisions.
Inflation so far has shown only a limited direct response to the tariff developments, according to Goldman Sachs’ assessment. However, the bank cautions that price pressures are likely to rise in the months ahead as changes in trade policy feed through supply chains and consumer costs. The expectation of somewhat higher inflation is balanced by the view that reduced policy uncertainty supports demand and investment.
As a result of the improved trade outlook and a more stable policy environment, Goldman Sachs has also raised its forecast for U.S. economic growth in 2025. The bank now projects quarterly GDP growth of 1.25% for 2025, up from a prior estimate of 1.0%. This upward revision reflects the combined effects of steadier business confidence, potential easing of supply constraints, and the removal of some trade frictions that had weighed on growth expectations.
The change in recession probability and the GDP upgrade reflect how macroeconomic forecasts can shift when major sources of uncertainty are resolved. Financial markets and corporate planning often react quickly to clearer policy signals: when trade tensions ease, firms are more likely to invest in new capacity, hire employees, and pursue longer-term projects. Those behaviors support higher growth outcomes, which is consistent with Goldman Sachs’ decision to revise both the recession risk and the 2025 GDP projection.
While these revisions are positive, economists and market participants emphasize that risks remain. Geopolitical tensions, potential future tariff changes, and other shocks—such as disruptions to global supply chains or unexpected monetary policy moves—could still alter the outlook. Likewise, inflation trends will be closely watched; if price increases accelerate more than expected, central banks may respond in ways that could slow growth.
In summary, Goldman Sachs now places a 30% probability on a U.S. recession within the next 12 months, down from 35%, attributing the downgrade to lower uncertainty after a new U.S.-China trade framework. The bank also boosted its 2025 quarterly GDP growth forecast to 1.25% from 1.0%, reflecting expectations of stronger demand and investment as trade frictions ease. Nevertheless, policymakers and investors remain alert to ongoing risks that could change the economic trajectory.