Morgan Stanley and Goldman Sachs, two key financial institutions, have both revised their U.S. GDP growth outlooks for 2025, citing concerns over inflation and policy adjustments.
Morgan Stanley Cuts U.S. GDP Forecast to 1.5%
Morgan Stanley has trimmed its U.S. GDP growth forecast to 1.5% for 2025, down by 0.4 percentage points. Goldman Sachs has reduced it to 1.7%, lowering previous expectations of 2.2% growth.
These changes reflect anticipated challenges from more restrictive trade and immigration policies. The revisions also incorporate higher inflation projections, with core PCE inflation estimated to reach 2.7% by December 2025.
Investor Sentiment Hit by Growth Downgrades
The revised forecasts have influenced investor sentiment, with the S&P 500 experiencing a -2.28% YTD return. Despite this, the index shows resilience with a 12.67% return over the past year.
Goldman Sachs has heightened recession probability, indicating broader concerns over economic stability. These factors have created ripples within financial markets, showing visible impacts on stock performances and hedging activities.
Inflation Risks Linked to Trade Policies
This adjustment in GDP forecasts mirrors past economic challenges, such as the 2024 downturn, where the Citi Economic Surprise Index hit its lowest since operations began.
Experts like Robert Rubin caution against trade-related policies, identifying a serious risk of inflation and productivity decline. These insights indicate possible headwinds, drawing parallels to historical economic pressures.
“I think tariffs create a very serious risk of inflation. I also think it will be a substantial threat to growth because it can adversely affect productivity.” — Robert Rubin, Former Co-Chair, Goldman Sachs
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