Goldman Sachs Group Inc is raising concerns of a US recession as the trade dispute between the US and China intensifies, boosting the effect on economic growth.
The US investment bank said that it no longer expects a trade deal before next year’s US presidential election, as threatened new tariffs take effect. It also lowered its fourth-quarter growth forecast by 0.2 percentage points to 1.8 percent, and predicted that companies might lower spending and investments amid the uncertainty.
“Fears that the trade war will trigger a recession are growing,” Goldman Sachs said in a research note on Sunday from its US economists, adding that “we have increased our estimate of the growth impact of the trade war.”
After US President Donald Trump two weeks ago issued a surprise threat to apply new tariffs on US$300 billion of Chinese goods, Beijing on Monday last week responded by halting purchases of US crops and allowing the yuan to fall to the weakest level since 2008.
Last week, Lawrence Summers, a former US Treasury secretary and a White House economic adviser during the last downturn, said that the escalating trade tensions are nudging the world economy toward its first recession in a decade, with investors demanding politicians and central bankers to act fast to change course.
In the US alone, the recession risk is “much higher than it needs to be and much higher than it was two months ago,” Summers told Bloomberg Television. “You can often play with fire and not have anything untoward happen, but if you do it too much, you eventually get burned.”
On Sunday, Summers called the China fight a “sadomasochistic and foolish trade conflict” during an interview on CNN’s Fareed Zakaria GPS.
Despite the risks, a crisis of the magnitude seen during the previous recession “would be a great surprise,” Summers said.