Analysts at Goldman Sachs Group Inc (NYSE: GS) have warned that the escalating trade war between the U.S. and China is raising the risk of an economic recession.
In a note sent to clients Sunday, the investment bank said it no longer expects Washington and Beijing officials to strike a trade agreement before the 2020 U.S. presidential election.
“We have increased our estimate of the growth impact of the trade war. 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,” the analysts led by chief economist Jan Hatzius said in the note.
The analysts have now lowered their fourth-quarter growth estimate by 20 basis points to 1.8%, with the cumulative drag on U.S. GDP of 0.6% in light of recent trade war events. New York-based Goldman Sachs also expects President Donald Trump to carry out his threat of imposing tariffs on the remaining Chinese exports to the U.S.
Earlier this month, Trump announced that he would impose a 10% tariff on an additional $300 billion of Chinese goods to the U.S. from September 1, a move that prompted China to respond by suspending purchases of U.S. farm products.
The Trump administration also officially labeled China a “currency manipulator” last week, after Beijing officials let the yuan slide below the politically sensitive level of seven to the dollar. A weaker yuan makes Chinese goods cheaper on the international market, though the Asian economic giant denied that it manipulated the currency.
China’s central bank said the labelling of Beijing as a currency manipulator seriously hurts international rules. The bank has promised not to use the yuan as a weapon in the trade war.
Hatzius stated that financial conditions, business sentiment, supply chain distribution of rising input costs, and policy uncertainty will all contribute to lower-than-expected growth as a result of the trade war.
“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,” he said.
Goldman Sachs Group Inc Profile
Goldman Sachs is a global investment banking firm whose activities are organized into investment banking, institutional client services, investing and lending, and investment management segments.
Approximately 60% of the company’s net revenue is generated in the Americas, 15% in Asia, and 25% in Europe, the Middle East, and Africa. In 2008, Goldman reorganized itself as a financial holding company regulated by the Federal Reserve System. – Warrior Trading News
