What Economists Are Predicting About a Possible Recession

The possibility of a recession in the US remains a topic of debate among economists with divided opinions.

Real US GDP fell in the first quarter, a drop not seen since 2022, mainly driven by a surge in imports as companies prepared for expected tariffs under the Trump administration.

However, this decrease in GDP doesn't necessarily signal an impending recession, as job growth and other economic indicators have not yet shown clear signs of a downturn. It may take additional time to observe convincing evidence, and there is a possibility the US might evade a recession this year.

Economic uncertainty has led to a decline in consumer confidence and business enthusiasm, with some organizations retracting their forecasts.

Economists Weigh in on Potential Recession

Claudia Sahm, a leading economist at New Century Advisors, shared her insights with Business Insider, emphasizing that we're on a path towards a recession but could divert away with less stringent policies. Although the Trump administration has made moves, like pausing numerous tariffs for 90 days, Sahm believes a recession is not imminent.

Regardless of whether a recession hits in 2025, Sahm anticipates the economy to decelerate, leading to adjustments like a more competitive job market. Even if a recession occurs, Sahm suggests it wouldn't be a drastic one.

Nobel laureate Paul Krugman cautions against over-interpreting the latest GDP figures, comparing current conditions to past statistical anomalies. He also warns of significant economic disruptions from trade tensions, likening them to COVID-era supply chain issues.

Torsten Sløk, the chief economist at Apollo Global Management, predicts a 90% likelihood of a 'Voluntary Trade Reset Recession.' He suggests that collaboration with North American partners like Mexico and Canada could create opportunities for mutual economic benefits and possibly avert a recession.

Olu Sonola from Fitch Ratings remains cautiously optimistic, outlining that a recession is not currently anticipated, provided tariff levels remain stable. However, he notes a heightened risk of stagnation combined with inflation.

Potential Economic Challenges Ahead

KPMG's Diane Swonk forecasts a mild recession extending from the second to the fourth quarter, with a modest recovery unless buoyed by a substantial stimulus package.

Swonk highlights early warning signs such as declining consumer sentiment and job security concerns, adding that inequality aggravates the issue, leaving lower-income households particularly vulnerable.

Economist Cory Stahle notes a persistent fear of recession overshadowing prospects for a soft economic landing. He suggests that recent trade policy adjustments could alleviate some worries, although possibly too late to avoid impacted market behaviors.

Eric Rosengren, formerly of the Federal Reserve Bank of Boston, assigns a high probability to an approaching recession, linked to tariffs potentially dampening growth and fueling inflation.

Dana Peterson of The Conference Board shares that while a recession isn't the base case, indicators point towards weakened growth and inflation alongside rising unemployment.

From J.P. Morgan Asset Management, David Kelly suggests that a shallow recession later this year could prompt governmental measures, potentially leading to moderate stimulus efforts, despite these possibly exacerbating the national deficit.

Insights from Desmond Lachman

Desmond Lachman of the American Enterprise Institute outlines several recession triggers, such as investment hesitancy resulting from trade policy uncertainty, tax-related price increases, and declining asset values.

Mark Hamrick from Bankrate discusses how consumer behavior plays a critical role in economic resilience, cautioning about the impact of potential import restrictions and cost increases reminiscent of pandemic supply challenges.

Hamrick also notes that the general public might perceive economic conditions as recessionary, whether or not official declarations reflect it.