NEW YORK: Goldman Sachs has raised its probability of a U.S. recession in the next 12 months to 30% from 25%, marking a sharper turn in its outlook as higher energy costs, tighter financial conditions and a waning lift from recent tax legislation weigh on growth. The revision, made this week, follows a rapid deterioration in the macro backdrop as oil and gas prices surged after the conflict in the Middle East disrupted energy markets and lifted inflation concerns across the global economy.
The move reverses part of the optimism Goldman expressed at the start of the year, when it cut its 12 month recession probability to 20% from 30% in a January outlook that pointed to solid domestic demand, easier financial conditions and stronger than expected growth. Goldman now expects the U.S. unemployment rate to rise to 4.6% by the end of 2026 and sees annualized gross domestic product growth slowing to between 1.25% and 1.75% in the second half of the year.
Goldman’s revised view came alongside a higher oil-price forecast. The bank raised its 2026 average Brent crude forecast to $85 a barrel from $77 and its West Texas Intermediate forecast to $79 from $72, while projecting Brent would average $110 in March and April. Brent crude traded near $99 a barrel on Wednesday after briefly climbing above $100 earlier in the week, underscoring how sharply the energy shock has altered cost assumptions for households, businesses and policymakers.
Energy costs reshape the outlook
Fresh U.S. data has also pointed to slower momentum. S&P Global’s flash U.S. Composite PMI fell to 51.4 in March from 51.9 in February, the weakest reading in 11 months, with service sector activity easing to 51.1 even as manufacturing improved to 52.4. The survey showed input costs rising at the fastest pace in 10 months and selling price inflation accelerating to its highest level since August 2022, reflecting how rising energy bills are passing through to the broader economy.
The same survey showed private sector employment slipping into contraction, with the employment index falling to 49.7 for the first drop in more than a year. Businesses reported softer demand, higher input costs and greater uncertainty as they adjusted to the jump in fuel and shipping expenses. That weaker activity data arrived less than a week after the Federal Reserve kept its benchmark interest rate unchanged at 3.5% to 3.75% and said inflation remained somewhat elevated while uncertainty around the outlook had increased.
Rates stay in focus as growth cools
Federal Reserve officials have since signaled that renewed progress on inflation will be needed before lower borrowing costs can be considered, a stance that has tightened the backdrop for consumers and companies already facing higher energy bills. Borrowing costs across the economy have remained firm as Treasury yields rose and mortgage rates moved higher, adding to the pressure from gasoline and utility prices. For forecasters, that mix has made it harder to argue that the U.S. economy can absorb a prolonged energy shock without a meaningful slowdown.
Goldman’s new recession estimate still implies that a downturn is not its base case, but the change captures a materially more cautious assessment than the bank held in January. With energy prices higher, business activity cooling and inflation pressures proving sticky, the bank’s latest forecasts now point to slower growth and a softer labor market than it expected just weeks ago, even as the economy continues to expand – By Content Syndication Services.