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