Goldman Sachs says the trade war is 'kicking the tires' of growth - and doesn't expect it to spark a recession

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• Goldman Sachs said the trade war is "kicking the tires" of growth but appears unlikely to spark a recession.
• The banking giant said the scale of the growth impact, the Fed's easing, and resilient business sentiment made an economic downturn seem unlikely.
• Goldman expects a 0.25% hit to US growth because of the trade war, a relatively small shock compared to the 2008/9 recession where growth fell 2%.
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Goldman Sachs said the trade war is "kicking the tires" of growth but appears unlikely to spark a recession.

"Barring a large further escalation, we do not expect the trade war to cause a recession," Daan Struyven and his team of economists wrote in a research note.

They predicted the trade war would lower US growth by about a quarter of a percentage point or 0.25%, a relatively mild drop compared to its 2% decline during the 2008/2009 financial crash. They also said the Federal Reserve's recent interest-rate cut has offset the damage, and "financial conditions have eased substantially on net this year."

Goldman Sachs

Uncertainty has risen due to the trade war

Struyven and his team also found limited evidence the uncertainty caused by the trade war has damaged business sentiment.

"Starting with overall economic policy uncertainty, there is a clear negative correlation with capital spending," they wrote. "However, the link weakens substantially when we take into account the FCI and company capex expectations (which both still signal a decent outlook)," they added, referring to Goldman's financial conditions index and private-sector investment.

Given the US economy's resilience so far, the authors determined a "substantial further trade escalation would probably be required to generate enough downward pressure on growth to cause a recession." They argued that's "fairly unlikely because we expect the White House to want to avoid major disruption ahead of the election."

Goldman Sachs