Markets in turmoil as US tariff policies stoke recession fears

 

Global financial markets have been rocked by severe volatility in recent weeks, with US equities experiencing particular turbulence as investors react to President Donald Trump’s aggressive tariff policies. 

 

Despite momentary relief following potential exemptions for Canada and Mexico, market sentiment remains broadly negative fuelled by growing fears of a looming recession. 

 

Economic analysts have increasingly raised concerns about a potential downturn, with several key indicators suggesting mounting vulnerability. 

 

JPMorgan Chase’s economic models now estimate a 31% chance of recession, nearly double the 17% projected in November. Similarly, Goldman Sachs has revised its recession probability from 14% in January to 23% now.

 

“The combination of already weakening US economic data and fragile business and consumer confidence has been exacerbated by the March 4 tariff announcements targeting Canada, Mexico, and China,” said Nicolas Panigirtzoglou, a strategist at JPMorgan. “This substantially increases the likelihood of further deterioration in business and consumer sentiment, potentially triggering recessionary conditions.”

 

 

Alarming Federal Reserve projections

Adding to the growing unease, the Federal Reserve Bank of Atlanta’s GDP forecast model now projects a 2.8% contraction in the first quarter of 2025 – a dramatic reversal from the 2.3% growth forecast just a week ago and a far cry from last month’s 4% expansion prediction. 

 

While economic forecasting models are subject to fluctuations as new data emerges, the downward revision aligns with broader concerning trends. 
 

 

 

The Institute for Supply Management’s Purchasing Managers’ Index fell to 50.3 in February from 50.9 in January and below analyst expectations of 50.6, indicating a manufacturing sector on the edge of contraction.

 

Consumer spending has also faltered, with January’s data showing a 0.2% drop in expenditure, or 0.5% when adjusted for inflation, the steepest monthly decline in four years. 
Meanwhile, consumer confidence has hit a three-and-a-half-year low, and retail sales have posted their sharpest decline in nearly two years. 

 

 

Inflation concerns persist

Compounding these economic challenges is persistent inflation. Rising living costs, exemplified by a surge in egg prices due to avian influenza outbreaks, have added to consumer frustration. A Reuters/Ipsos poll indicates that only 31% of Americans approve of Trump’s handling of cost-of-living issues. 

 

The threat of additional inflationary pressure from new import tariffs raises further concerns about eroding consumer purchasing power and confidence. Economists warn that import duties could exacerbate rising prices, while job cuts in both the private sector and government agencies add to financial instability. 

 

“Confidence is the lifeblood of economic prosperity, and that confidence is currently under significant strain. While I remain unconvinced that we are inevitably heading towards recession, these concerns have prompted us to reduce our exposure to US equities,” François Savary, chief financial officer at Geneve Wealth Management, told Reuters.
 

 

Global institutions sound the alarm

In mid-January, the World Bank cautioned that Trump’s proposed 10% reciprocal tariff on all imports, scheduled for implementation in April, could trigger a 0.3% contraction in global GDP due to expected retaliatory measures from trading partners. 

 

Even without countermeasures, global growth could drop by 0.2%, while the US economy itself could shrink by 0.4%. If retaliatory tariffs are imposed, the impact could be even more severe, with US GDP potentialy contracting by 0.9%. 

 

Kristalina Georgieva, managing director of the International Monetary Fund (IMF), has also voiced concerns that uncertainty surrounding US trade policy is straining global economies and pushing up long-term interest rates.

 

At a press briefing on March 6, IMP spokesperson Julie Kozack specifically warned of adverse consequences for Canada and Mexico, whose economies are deeply intertwined with the US. This is the first time that the IMF has spoken explicitly about the potential ramifications of Trump's tariff strategy.

 

As financial markets continue to digest these developments, a critical question remains: Does the current turbulence represent a temporary disruption, or the beginning of a prolonged economic downturn? The answer may depend on whether the Trump administration chooses to adjust its combative approach to trade policy.