Goldman Sachs Research Optimistic On the US Economy for 2025

In a recent report, Goldman Sachs Research paints an optimistic picture for the US economy in 2025, projecting a GDP growth of 2.5%, exceeding the 1.9% consensus forecast. This positive outlook comes despite anticipated policy shifts under a second Trump administration, including increased tariffs on Chinese imports and automobiles, reduced immigration, and extended tax cuts.

The report, titled “The US economy is poised to beat expectations in 2025,” emphasizes the current strength of the US economy. Recession fears have subsided, inflation is steadily declining towards the 2% target, and the labor market, while rebalanced, remains robust. This solid foundation is expected to mitigate the potential disruptions from policy changes.

Interestingly, the analysis suggests that the diverse policy changes will likely have offsetting effects on the economy. While increased tariffs and reduced immigration might initially hinder growth, these drawbacks are expected to be counterbalanced by the stimulative effects of tax cuts and a less restrictive regulatory environment. The impact of these policies is anticipated to be more pronounced at the industry level than on the overall macroeconomic landscape.

One crucial factor contributing to the optimistic forecast is the expectation of continued consumer spending, fueled by rising real income and wealth effects. Consumers are expected to remain confident and continue spending, providing a vital boost to the economy. Additionally, business investment is projected to rebound, further bolstering economic growth. Companies are likely to increase investment in response to the favorable economic conditions, contributing to expansion and job creation.

However, Goldman Sachs acknowledges potential risks. A significant escalation of tariffs, particularly a 10% universal tariff, could trigger inflationary pressures and dampen GDP growth. Such a move could disrupt global trade and supply chains, leading to higher prices for consumers and businesses. Moreover, concerns about fiscal sustainability might arise due to the rising debt-to-GDP ratio, wider-than-usual deficit, and higher-than-anticipated real interest rates. This could lead to higher borrowing costs for the government and potentially crowd out private investment.

Despite these potential headwinds, Goldman Sachs remains confident in the Fed’s ability to manage the economy. They anticipate further cuts in the federal funds rate, ultimately reaching a terminal rate of 3.25-3.5%. This accommodative monetary policy, coupled with resilient risk sentiment and large fiscal deficits, is expected to offset the impact of higher interest rates on demand. By maintaining a supportive monetary policy stance, the Fed aims to encourage borrowing, investment, and economic activity.

In conclusion, Goldman Sachs Research presents a compelling case for a strong US economic performance in 2025. While acknowledging potential risks, their analysis highlights the resilience of the US economy and its capacity to absorb policy changes while maintaining a growth trajectory. This positive outlook is underpinned by expectations of continued consumer spending, a resurgence in business investment, and supportive monetary policy.