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The risk that the US economy will enter recession this year is rising, according to economists, as Donald Trump’s chaotic approach to tariffs continued to hit markets.
Shares on Wall Street fell sharply on Monday as investors bet the president’s unpredictable tariff trade war and handling of the economy would hit growth, amid a recent plunge in business and consumer confidence.
On another day of selling pressure in global markets, the Dow Jones industrial average was down 1.5%, while the S&P 500 was down 2.4%. Share prices also fell in Europe, as the FTSE 100 tumbled 0.9% in London, Germany’s Dax was down 1.7% and France’s CAC fell 0.9% on Monday.
Economists said the risks of a “Trumpcession” had increased as the president’s brinkmanship and stop-start approach to tariffs rattled global investors, exemplified by last week’s decision to pause US tariffs on goods from Canada and Mexico for the second time in as many months.
Trump declined on Sunday to rule out the possibility that the US economy could tumble into recession this year as he warned businesses and households to brace for a “period of transition” and the potential for higher inflation.
Analysts said the president could have used the interview with Fox News as an opportunity to calm jitters in financial markets but that he instead chose to press on with an increasingly chaotic approach to his second term in office.
Kathleen Brooks of the trading platform XTB said Trump was putting his political goals ahead of the strength of the economy and the stock market. “[His] flip-flopping on tariffs, and his old-fashioned views of America first, is weighing on consumption and knocking confidence.”
It comes as Wall Street economists downgrade their growth forecasts for the US, warning that Trump’s trade wars are proving more damaging for the US economy than first anticipated.
Analysts at Goldman Sachs said on Friday that the chances of a US recession had increased from 15% to 20%, as it revised its forecasts to incorporate higher tariffs and inflation, alongside a hit to gross domestic product and employment.
Morgan Stanley cut its 2025 GDP growth forecast from 1.9% to 1.5%. “While we did expect growth-constraining policies (tariffs and immigration controls) to precede growth-supportive initiatives (tax cuts and deregulation), their severity has been greater than we anticipated. This is especially the case with tariffs, which have come in faster and broader than we had penciled in,” it said.
Many economists still reckon the US will avoid the widely accepted definition of a recession – two consecutive quarters of shrinking output – but warn that the latest figures show the risks are mounting.
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Data from the US economy in recent weeks showed an unexpected fall in consumer spending in January, a widening of the US trade deficit to a record $131bn (£101bn) in the same month, as firms rushed to move goods before the introduction of tariffs, and the biggest fall in consumer confidence in four years in February.
The Atlanta Federal Reserve’s GDPNow model, which predicts growth based on available economic data, suggests the US economy could contract by 2.4% in the first quarter (annualised). The reading can be volatile and is influenced heavily by the ballooning US trade deficit, which is likely to be unwound in future months.
“Markets are now starting to get concerned about the prospects for growth in 2025,” said Paul Donovan, the chief economist at UBS global wealth management. “Trump’s tariff policy has been unpredictable, with a series of retreats so rapid they almost collide with the next tax hike announcement.
“The rather chaotic US tariff policy still allows companies to sell a story to their customers to cover for price increases, and some may also try to raise prices in anticipation of tariffs that actually end up being retreated from.”
