Goldman Sachs slashes US GDP growth forecast as US-China trade war continues

The US-based investment bank downgraded its fourth-quarter growth forecast for the US economy, blaming the ongoing US-China trade war for driving recession fears.

Goldman Sachs cut its fourth-quarter growth forecast by 20 basis points to 1.8% over the weekend, blaming the ongoing US-China trade war for potentially driving the American economy into a recession.

‘We have increased our estimate of the growth impact of the trade war,’ Goldman Sachs chief economist Jan Hatzius said in a note to investors on Sunday.

‘The drivers of this modest change are that we now include an estimate of the sentiment and uncertainty effects and that financial markets have responded notably to recent trade news.’

US-China trade war heats up

The ongoing trade war between the world’s two largest economies continues to rage on, with US President Donald Trump recently imposing a 10% tariff on an additional $300 billion worth of Chinese imports.

The move by Trump was in response to China allowing its currency to weaken against the dollar, with the Chinese yuan hitting the $7 landmark, making its exports cheaper.

Officials in Beijing also announced they would stop importing US agricultural goods.

Political uncertainty contributing to lower US growth, Goldman Sachs says

According to Goldman Sachs, political uncertainty is impacting global trade and fuelling lower-than-expected GDP growth in the US.

‘The policy uncertainty effect may lead firms to lower capex spending as they wait for uncertainty to resolve. Relatedly, the business sentiment effect of increased pessimism about the outlook from trade war news may lead firms to invest, hire, or produce less,’ Hatzius said.

Goldman Sachs said that the US-China trade war has eroded around 0.6% of GDP, including a 0.2% drag from the latest escalation.

‘Fears that the trade war will trigger a recession are growing,’ Hatzius added.

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