Forecasts for US economy slashed in run-up to Trump's 'Liberation Day' for tariffs

As economic policies of US President Donald Trump start to take effect both domestically and globally, and with Trump's "Liberation Day" rollout of reciprocal tariffs on April 2, US bodies and international agencies have forecast that these measures will drag down economic prospects for the world's largest economy.

Under various pretexts including illegal immigration, illegal drug trade, trade imbalances and repatriating manufacturing, tariffs have been imposed on both specific types of goods, as well as specific countries. Reciprocal tariffs are set to increase the scope of these tariffs to a universal level under a simplistic Trump rule - "We tax you what you tax us."

Several US financial institutions have warned, however, that launching such tariff wars on a global scale could have a self-directed impact, including increased prices for US consumers and job losses in US industry.

The US economy also faces a 20 percent probability of recession during the next 12 months, according to economists at Goldman Sachs.

"An outlook for slower growth suggests lower valuations on a more sustained basis," said Goldman Sachs Research chief US equity strategist David Kostin, in response to a reduced forecast for the S&P 500 index.

Morgan Stanley has lowered its forecasts for the US growth in 2025 from 1.9 percent to 1.5 percent, and for 2026 to 1.2 percent from 1.3 percent, citing greater impacts from tariffs and a still-light labor market resulting in higher inflation.

Earlier and broader tariffs should translate into soft growth this year, whereas it was previously assumed it would weigh on growth mainly in 2026, said Morgan Stanley economists led by Michael T Gapen.

The tariffs and counter tariffs initiated by the Trump administration in 2025 could cause global output to fall by around 0.3 percent by the third year of his term, and global inflation rising by 0.4 percentage points per annum over the first three years, according to the OECD Interim Report for March 2025.

The US economy is expected to grow more slowly, the US Congressional Budget Office (CBO) said on March 27, responding to the publication of the Long-Term Budget Outlook: 2025-2055. 

The country could face slower economic growth over the next three decades due to weak population gains and increased government spending, the CBO stated on its website.

(With input from Reuters, cover via VCG)