The United States is teetering on the edge of an economic downturn, with prominent economists sounding the alarm that a recession may have already begun. As of 22 April 2025, mounting evidence from declining consumer confidence, aggressive trade policies, and weakening economic indicators suggests trouble ahead.
Top financial minds are now revising their forecasts, with some estimating a near-certain slump. Here's why the warning bells are ringing and what it means for the global economy.
Tariffs: A Catalyst for Economic Woe
President Donald Trump's trade policies, particularly his sweeping tariffs, have sparked fears of a sharp economic slowdown. J.P. Morgan's chief global economist, Bruce Kasman, warned on 7 April 2025 that the universal 10% tariff, combined with a 145% levy on Chinese imports, equates to a £783 billion ($1 trillion) tax hike, or 3% of US GDP, making it the largest household and business tax increase since World War II.
'Even with recent softening of the Liberation Day measures, what remains is enough to push the US, and likely the global economy, into recession,' Kasman stated. This policy shock could shave four percentage points off US GDP, according to Apollo Global Management's Torsten Sløk, who pegs the odds of a 'Voluntary Trade Reset Recession' at 90% as of 21 April 2025 Business Insider.
Small businesses, a cornerstone of the US economy, are particularly vulnerable. Sløk noted that these firms, which accounted for £4.6 trillion ($6.1 trillion) or 44% of GDP in 2014, lack the capital to absorb tariff costs, risking widespread bankruptcies.
With consumer spending, representing 70% of GDP, already faltering (February retail sales grew by just 0.2% against a forecast of 0.6%), the ripple effects could be devastating Youtube.
Warning Signs Flashing Red
Beyond tariffs, other economic indicators are raising red flags. The Federal Reserve Bank of Atlanta's GDPNow model forecasts a 2.8% contraction in first-quarter 2025 GDP, the worst since the 2020 pandemic.
Consumer confidence has plummeted to its lowest since 2021, per the Conference Board's survey, while layoff announcements hit a 4.5-year high in early 2025. The unemployment rate, though still healthy at 4.2% in March, is expected to climb to 4.5% by year-end, according to CNN.
Bankrate's first-quarter survey, conducted before Trump's April tariff escalation, reported a 36% recession probability, up from 26% in late 2024. 'Policy uncertainties, including Trump's import taxes, are behind these downbeat estimates,' the survey noted.
Meanwhile, betting markets like Polymarket have priced in a 32% chance of a 2025 recession, a sharp rise from 23% in February. These signals, coupled with a 6% drop in the S&P 500 over two weeks, paint a grim picture.
Can the US Dodge the Downturn?
Not all economists are pessimistic. Wells Fargo sees 'fertile ground' for a second-half recovery, citing strong bank reserves and easing borrowing costs, with 30-year mortgage rates dropping to 6.6% from a 2023 peak of 7.79%.
However, the consensus leans toward caution. With the National Bureau of Economic Research yet to declare a recession, the combination of tariff-driven inflation, declining sentiment, and slowing growth makes a downturn increasingly likely.
As former Treasury Secretary Lawrence Summers warned on 8 April 2025, 'I'd be surprised if the bottom is yet in, with losses in household income potentially reaching £3,900 ($5,200) per family.' The US economy stands at a crossroads, and the world is watching.
Originally published on IBTimes UK
