Pimco warns that the probability of a U.S. economic recession is close to 50%: Supply chains struggle to withstand tariff impacts
Pacific Investment Management Company (Pimco) warned that the likelihood of a U.S. economic recession is approaching 50%. Although U.S. stocks have recently stabilized, the economic outlook remains grim due to supply chain constraints and the tariff policies of the Trump administration. Pimco pointed out that the U.S. is struggling to quickly replace the lost output from Chinese manufacturing, and companies need to effectively diversify production to cope with the challenges posed by tariffs. Other market participants also expressed pessimism about the economic outlook, believing that high tariffs could lead the U.S. into a recession by 2025
According to the Zhitong Finance APP, despite U.S. President Trump announcing a suspension of certain tariffs earlier this month, Pacific Investment Management Company (Pimco) believes that even though there are some signs of stabilization in the U.S. stock market, the likelihood of a U.S. economic recession remains close to 50%.
After Trump announced large-scale tariffs on imported goods, referred to as "reciprocal tariffs," the U.S. stock market reacted strongly. The S&P 500 index has fallen nearly 6% this month and has accumulated a decline of about 15% year-to-date. Although subsequent changes in tariff policies and signs of negotiations between the U.S. and other economies have helped alleviate investor concerns and driven a rebound in the U.S. stock market, Pimco maintains that the risk of a U.S. economic recession remains high, primarily due to supply chain tensions.
Pimco stated that given decades of industrial decline, the U.S. is unlikely to quickly replace the lost manufacturing output from China. In a recent investor report, the company stated: "We believe the likelihood of a U.S. economic recession remains high, close to a coin toss, depending on whether U.S. supply chains can relatively quickly shift from China to other production sources, and this process will not be seamless." The company warned that unless businesses can effectively diversify production, the chaos triggered by Trump's tariff measures could continue to severely hinder economic growth.
In addition to Pimco, other market participants have also expressed pessimistic views on the U.S. economic outlook. Apollo's chief economist Torsten Slok stated in an interview on Monday that if Trump's tariff policies continue, he is "absolutely" certain that the U.S. will fall into a recession by 2025.
Torsten Slok indicated that if the high tariffs implemented by the Trump administration earlier this month remain in effect, the likelihood of U.S. economic output contracting for two consecutive quarters could be as high as 90%, with GDP expected to decline by 4 percentage points. This economist believes that tariffs are particularly damaging to small businesses in the U.S., as they are less likely to have enough cash to pay the high tariffs on imported goods. "If this situation continues, there will be a large number of retail bankruptcies in the U.S."
Citi's chief economist Nathan Sheets stated on Tuesday that due to the impact of Trump's tariffs on trade partners, the probability of a U.S. economic recession is between 40% and 45%. Nathan Sheets expects that driven by consumer purchases ahead of the tariff implementation, U.S. GDP will grow in the second quarter, but he anticipates that the maximum impact of tariffs on U.S. economic growth will manifest in the second half of this year.
The International Monetary Fund (IMF) stated in its latest World Economic Outlook report released this week that the impact of U.S. tariff measures and policy uncertainty will significantly slow down the global economy in the short term. The IMF also predicts a 40% probability of the U.S. entering a recession by 2025, up from the 27% forecast made last October.
Goldman Sachs CEO David Solomon stated last week that as trade policy uncertainty intensifies and many CEOs feel confused about how to plan for the future, the likelihood of a U.S. economic recession is rising. David Solomon noted that the uncertainty of the future poses significant risks to both the U.S. and global economies Even before the escalation of tariffs, global economic growth had already slowed, and the new policies have almost "reset" global expectations for future growth. He pointed out that Goldman Sachs' corporate and investment clients are generally concerned that short-term and long-term uncertainties are limiting their ability to make key decisions. He added that the government's recent demonstration of a more gradual negotiation stance is commendable, as it provides space for negotiations with multiple countries, but market volatility will continue until specific policies are implemented