The aggressive tariff policy started in the U.S. will probably result in a substantial slowdown of economic activity this year and next year, suggested a recent Reuters poll of dozens of economists. The tariffs are expected to dampen the relatively strong momentum seen in early 2025, when growth, consumer spending, and employment data all painted an optimistic picture.
Higher Chances of Recession
It would be a more robust forecast for a US recession in the next 12 months—a prediction based on the median forecast among economists polled by Reuters. The risk has increased now to 45%—the highest level since December 2023—up from 25% last month. The uptick in risk comes as fears of balance sheet normalization and potential reduction in capital expenditure rise.
That Will Hit Business Confidence Hard
An overwhelming majority of the economists surveyed think the tariffs are damaging business sentiment. In fact, 48% of these experts said the effect was “very negative.” Companies are holding back on spending capital in the US economy due to a less specific trade environment now.
Forecasts for Growth Lowered
Economists are now unanimous that the US economy’s growth is durable and much lower in 2025. Growth is predicted at 1.4%, a reduction from 2.2% just 30 days ago. More broadly, among regular responders to the poll, 2025 growth expectations have been trimmed by an average of around 80 basis points of GDP over the same span. Forecasters also reduced their outlook for 2026, chopping 1.5% from earlier 2.0% predictions made back in March.
Other Key Insights
Economists have raised their projections for several inflation measures, from consumer prices to core as a whole. Yet, these projections are also projected to remain quite elevated, far from the Fed’s 2% target until at least 2027. Many upward revisions to inflation forecasts over the last month should hold back the Fed from being able to deliver multiple cuts in short order.
