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Trade War is Raising the Risk of U.S. Recession, Goldman Sachs Warns

The trade war with China is having a greater effect on the U.S. economy than expected, and the risk of recession is rising, Goldman Sachs Group Inc. said Sunday.

In a note to clients, Goldman analysts led by chief U.S. economist Jan Hatzius said a trade deal between the U.S. and China is no longer expected before the 2020 presidential election.

Goldman GS, -0.05%   said it now expects a 0.6% drag on the U.S. economy due to trade-war developments, up from earlier estimates of 0.2%. “Fears that the trade war will trigger a recession are growing,” Hatzius said in the note.

Goldman also lowered its fourth-quarter U.S. growth forecast by 20 basis points to 1.8%, saying the trade war is weighing down the economy.

“Overall, we have increased our estimate of the growth impact of the trade war,” Hatzius wrote. “The drivers of this modest change are that we now include an estimate of the sentiment and uncertainty effects and that financial markets have responded notably to recent trade news.”

Uncertainty caused by the trade war could cause businesses to lower spending until tensions are resolved, the report said. “Relatedly, the business sentiment effect of increased pessimism about the outlook from trade war news may lead firms to invest, hire, or produce less,” wrote Hatzius.

The Goldman analysts said they expect President Donald Trump to carry out his threat to impose 10% tariffs on an additional $300 billion in Chinese exports starting Sept. 1.

Source: marketwatch

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