Goldman Sachs Downgrades US Economy at 1.7 from 2.4

Catenaa, Friday, March 14, 2025-Goldman Sachs has downgraded its US economic outlook for 2025, citing President Donald Trump’s escalating tariff policies as a major risk to growth, the investment bank’s chief economist, Jan Hatzius, said Tuesday.¹

Goldman now forecasts US GDP to grow at US 1.7% US next year, down from its previous US 2.4% US estimate. The revision comes as the bank expects tariffs to rise by US 10 basis points US, double its earlier forecast.

Hatzius, known for predicting the 2007 financial crisis, said the downgrade stems from deteriorating trade policy expectations rather than weak economic data.

“We expect the next few months to bring a critical goods tariff, a global auto tariff, and a ‘reciprocal’ tariff,” Hatzius wrote in a client note.

He warned that the administration may classify Europe’s value-added tax (VAT) as a tariff, escalating trade tensions.

Goldman estimates tariffs will shave US 0.8 percentage pointsUS off GDP growth over the next year. The firm also revised its inflation projection, raising the Fed’s preferred metric to US 3%US, up US 0.5 percentage pointsUS from prior forecasts. Goldman now expects two Fed rate cuts this year, one fewer than market expectations.

Investors are already reacting, with US markets underperforming compared to Europe and Asia. Hatzius cautioned that further volatility may lie ahead as the US economy faces increasing pressure from trade disputes and policy uncertainty.

Sources