Financial forecasters are growing more worried about the risk of a recession as recent trade tensions intensify. J.P. Morgan has raised its probability of a global recession to 60% from 40%, explicitly pointing to “disruptive U.S. policies” as the largest threat to economic stability. S&P Global has increased its odds of a U.S. recession to 30–35% from 25%, and Goldman Sachs raised its estimate to 35% from 20% even before the April 2 tariff announcement. These revisions come amid broad U.S. tariff measures and retaliatory actions from China, stoking concerns that trade friction could escalate into a larger economic conflict.
A range of major banks and financial institutions — including HSBC, Barclays, Bank of America, Deutsche Bank, RBC and UBS — have warned that sustained tariffs could significantly raise recession risks. Many now forecast much weaker growth, with projections for economic expansion falling into a narrow band between roughly 0.1% and 1% if tariffs remain in place. The prospect of protracted trade disputes has altered outlooks in both developed and emerging economies, as higher tariffs disrupt supply chains, raise costs for businesses and consumers, and reduce global demand.
Market reactions have been swift. The S&P 500 has fallen more than 8% year-to-date, reflecting investor concern about slower growth and rising uncertainty. That decline has led several brokerages to lower their year-end equity targets, reversing a period of optimism that followed the 2016 U.S. presidential election. Analysts point to the combination of policy uncertainty and tighter trade conditions as key drivers behind the reassessment of risk and valuation multiples across equity markets.
Beyond headline recession probabilities, economists emphasize several channels through which tariffs can damage growth. Higher import costs feed into inflation, erode real incomes and curb consumer spending. Businesses facing increased input prices may delay investment or pass costs on to customers, reducing demand and profit margins. Disrupted global supply chains can also raise production costs and complicate inventory management, making firms more cautious about expansion and hiring.
The uncertainty created by shifting trade policy has prompted many firms to reassess capital expenditure plans and rethink global sourcing strategies. Some companies are already exploring relocation or diversification of suppliers to avoid concentrated exposure to tariff-affected trade routes. While such adjustments can mitigate long-term risk, they take time and investment, and in the near term they can depress economic activity.
Policymakers face a delicate balancing act. On one hand, tariffs are often used to protect domestic industries and address perceived unfair trade practices. On the other, sustained or escalating tariff regimes risk triggering retaliatory measures that reduce export demand and create a drag on growth. Central banks and fiscal authorities may be limited in how much they can offset the negative impact from trade shocks without jeopardizing other policy objectives.
Investors and businesses are watching closely for signs of escalation or de-escalation in trade negotiations and for any policy responses designed to cushion the economy. The next moves by major economies will likely influence near-term growth and market sentiment. For now, the consensus among many forecasters is that the combination of tariff measures and retaliatory steps has materially increased downside risks to the global and U.S. economic outlooks.