Is a potential economic downturn in the United States forecasted for the year 2025?
Let's Talk Economics: Are We Heading Towards a US Recession?
Before Donald Trump's victory in the US election, the prospects of a US recession seemed remote. The man who once hosted The Apprentice and reigned as a business tycoon seemed to have a good grasp on economic matters. Fast forward to current times, and the narrative is rapidly changing. Donald Trump's Liberation Day tariffs are causing panic, with the potential of dragging the US economy into negative territory.
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The Market Meltdown: S&P 500 Diving
World investors are shaking in their boots with a potential US recession looming. On 3rd April, the S&P 500 nosedived almost 4.5% following Trump's announcement of far-reaching tariffs. According to fund manager David Coombs, Rathbone Multi-Asset Portfolios, markets are terrified, while investors are bracing for a possible recession.
Trump's Tariffs: Recession or Downturn?
While Trump isn't guaranteeing a recession, many experts are recalculating their growth forecasts for the US economy. Johanna Kyrklund, Schroders' group chief investment officer, believes that Trump's tariffs will stifle economic growth, with 1% GDP growth in 2025 predicted by her team.
What is a Recession, Anyway?
A recession is a substantial contraction in economic activity, most often defined as two consecutive quarters of negative GDP growth. Famous examples include the Great Depression, the Great Financial Crisis, and the bursting of the dotcom bubble. A US recession doesn't just affect the US; it can spread globally due to our interconnected economy.
Your Wallet on the Line: How a US Recession Affects You
A US recession could have devastating effects on your finances, especially if it's caused by tariffs. The collapse of the S&P 500 on Trump's announcement day is a clear sign of the fragility of the US stock market. If the US stock market contracts, it will have a heavy impact on your savings and investments, given that most global trackers are weighted towards US companies.
The Odds of a US Recession: Hit or Miss?
Economists at Capital Economics believe that the likelihood of a US recession depends largely on whether Trump uses the funds raised from tariffs to boost the economy or cut the budget deficit. according to their estimation, Trump could generate $700 billion from tariffs. If Trump uses the money to stimulate the economy, the GDP growth may only slow a little. But if he chooses to reduce the budget deficit, it would cause a fiscal tightening, which means the US economy might be lucky to avoid a recession.
In summary, while immediate indicators don't suggest an imminent recession, the continued policy uncertainty and reduced investment could increase recession risks over time. To ensure a favorable economic future, the administration needs to adopt more predictable, coherent trade policies to restore confidence.
- In light of the ongoing tariff policies, such as Trump's Liberation Day tariffs, many investors are becoming concerned about the potential impact on bond markets, particularly due to the fear of a US recession.
- Amidst the continuing economic uncertainty, experts like Johanna Kyrklund from Schroders are revising their growth forecasts for the US economy, suggesting a potential slowdown in growth rates due to the impacts of tariffs.
- Given the recent market volatility, where the S&P 500 plummeted following Trump's tariff announcements, it's essential for individuals to keep a close watch on finance and general-news sources to understand how tariffs could affect their savings and investments.
- The international business community is keenly watching the developments in US politics and finance, as a US recession could have far-reaching effects on the global economy, given our interconnected financial system.
