Global companies are raising alarms over a potential “recession” in the US and worldwide following US President Donald Trump’s sweeping tariff measures. Some of the new levies took effect on Saturday, while others are scheduled for April 9. The move has prompted retaliatory action from China and sparked concerns of an escalating trade war that could stall global economic growth.
JP Morgan raised its probability of a US and global recession to 60%, up from 40% last month, citing the growing tariff-related stress on markets and investor confidence. Other major financial institutions also revised their forecasts. S&P Global increased its estimated chance of a US recession to 30-35%, up from 25%, while Goldman Sachs earlier lifted its estimate to 35%, from 20%, noting weakening economic fundamentals.
According to a Bloomberg report, HSBC echoed the concerns, saying the recession narrative is gaining momentum, though it believes much of this risk is already “priced in”. Its equity market indicator currently reflects a 40% chance of a recession by year-end.
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Other institutions – including Barclays, BofA Global Research, Deutsche Bank, RBC Capital Markets, and UBS Global Wealth Management – also warned of rising recession risks if the tariffs remain in place.
{{/usCountry}}Other institutions – including Barclays, BofA Global Research, Deutsche Bank, RBC Capital Markets, and UBS Global Wealth Management – also warned of rising recession risks if the tariffs remain in place.
{{/usCountry}}The Trump administration's latest round of tariffs – the most extensive so far – now targets a wide range of imports, excluding goods from Mexico and Canada. The White House invoked emergency economic powers to justify the move, arguing the US suffers from trade imbalances due to a lack of reciprocity and high foreign taxes.
Starting April 9, around 60 countries – including the EU, Japan, and China – will face even higher, country-specific tariffs. In response, China announced its own 34% tariffs on US goods from April 10 and said it would file a complaint at the World Trade Organization (WTO) and restrict exports of rare earth elements, critical to high-tech industries.
While China took immediate retaliatory steps, other global trading partners are adopting a wait-and-watch approach amid growing concerns about a slowdown in the global economy.
What is a recession?
In the US, the National Bureau of Economic Research (NBER) – a private organisation responsible for determining the official start and end dates of recessions – uses a broad approach to define a recession. According to its Business Cycle Dating Committee, a recession is marked by a significant decline in economic activity that is widespread, lasts more than a few months, and is usually evident in areas such as production, employment, real income, and other key indicators.
The committee identifies a recession as beginning when economic activity peaks and ending when it hits a low point or trough. In making its assessment, the NBER considers a wide range of data beyond GDP, including employment, income, sales, and industrial output.
The International Monetary Fund (IMF) states that there is no single official definition of a recession, though it is commonly understood as a period of declining economic activity. Brief downturns typically do not qualify, the IMF says.
A widely used rule of thumb among analysts is two consecutive quarters of decline in real (inflation-adjusted) GDP, which represents the total value of goods and services produced in a country. While this GDP-based approach is practical, the IMF notes it has limitations, as it doesn't capture the full picture of economic conditions. A broader set of indicators often provides a more accurate and timely understanding of whether an economy is truly in recession.
What causes a recession?
According to the IMF, understanding the causes of recessions has long been a central focus of economic research. Recessions can result from a variety of factors.
- One common cause is a sudden spike in the prices of key production inputs, such as oil. When energy costs rise sharply, they push up overall prices, reduce consumer purchasing power, and lead to a drop in aggregate demand.
- Recessions may also occur when a country implements contractionary monetary or fiscal policies to control inflation. If these measures are too aggressive, they can suppress demand for goods and services, triggering an economic slowdown.
- Financial market instability is another major cause, as seen during the 2007 global financial crisis. Rapid surges in asset prices and credit expansion can lead to unsustainable debt levels.
- When households and businesses become over-leveraged and struggle to repay debt, they scale back on spending and investment, reducing economic activity.
- While not all credit booms end in recessions, those that do often lead to deeper and more prolonged downturns. Additionally, recessions can result from declining external demand, especially in export-dependent economies.
- Economic slowdowns in major countries like the United States, Germany, or Japan can quickly impact their trading partners, particularly during globally synchronised recessions.