Trump tariff effect: Global brokerages raise recession odds; J.P.Morgan sees 60% chance

 J.P.Morgan said it expects the tariff shock to be “modestly dampened” by the prospect of further rate cuts. File.
| Photo Credit: Reuters

J.P.Morgan ratcheted up its odds for a U.S. and global recession to 60%, as brokerages scrambled to revise their forecast models with tariff distress threatening to sap business confidence and slow down global growth. The Trump administration imposed tariffs on dozens of countries earlier this week.

China retaliated on Friday with its own levies on U.S. goods, adding to worries about an escalating trade war and wreaking havoc on global financial markets.

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J.P.Morgan said it now sees a 60% chance of the global economy entering recession by year end, up from 40% previously.

“Disruptive U.S. policies have been recognized as the biggest risk to the global outlook all year,” the brokerage said in a note on Thursday, adding that the country’s trade policy has turned less business friendly than anticipated.

“The effect … is likely to be magnified through [tariff] retaliation, a slide in U.S. business sentiment and supply-chain disruptions.”

S&P Global also raised its “subjective” probability of a U.S. recession to between 30% and 35%, from 25% in March.

Last week, before the April 2 tariff announcement, Goldman Sachs also raised the probability of a U.S. recession to 35% from 20%, noting economic fundamentals were not as strong as in the previous years.

HSBC said on Thursday that the recession narrative will gain traction, but added some of this is already “priced in”. “Our equity market implied recession probability indicator suggests equities are already pricing in (about) 40% chance of a recession by the end of the year,” HSBC analysts added.

Other research firms including Barclays, BofA Global Research, Deutsche Bank, RBC Capital Markets and UBS Global Wealth Management also warned the U.S. economy faces a higher risk of slipping into a recession this year if Trump’s new levies remain in place.

Barclays and UBS warned the U.S. economy could enter into contraction territory, while other analysts forecast economic growth broadly between 0.1% and 1%. U.S. equity markets rallied in November after Trump won a second term in the White House on expectations of business-friendly policies.

Following Mr. Trump’s tariffs announcement in January, it has been a forgettable three months for Wall Street’s main indexes, with the benchmark S&P 500 down over 8% so far this year. Brokerages including Barclays, Goldman, RBC and Capital Economics slashed their year-end targets on U.S. stocks, with UBS downgrading its recommendation to “neutral” from “attractive”.

Capital Economics cut its index target for the S&P 500 to 5,500, the lowest among major brokerages, closely followed by RBC’s 5,550.

Rate-cut hopes

While tariffs could stifle economic growth, some analysts expect this could give more room for the U.S. Federal Reserve to cut interest rates further in order to boost economic activity. J.P.Morgan said it expects the tariff shock to be “modestly dampened” by the prospect of further rate cuts.

Goldman estimates three interest rate cuts by the end of the year, compared with expectations of two cuts before Trump’s tariffs announcement earlier this week. This year, Nomura and RBC expect one and three rate cuts, respectively, compared with expectations of none earlier.

UBS sees the Fed cutting interest rates between 75 and 100 basis points over the remainder of 2025. Citigroup, reiterated its forecast of 125 basis points worth of cuts starting in May, while J.P.Morgan maintained its expectation of two 25-basis point rate reductions.

Investors expect 100 bps of rate cuts in 2025, according to data compiled by LSEG.